Why is the offering of "teaser loans" by commercial banks a cause of economic concern? 1. The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future. 2. In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units. Which of the statements given above is/are correct?

Statement 1 is correct. Teaser loans offer an initial low interest rate that later resets to a higher, floating rate. This structure can attract borrowers who may not be able to afford the higher payments once the rate resets, especially if their financial capacity was not thoroughly assessed for the long term. This practice is often associated with sub-prime lending, where loans are given to borrowers with weaker credit profiles, increasing the risk of defaults for banks and posing a systemic economic concern, as seen during the 2008 global financial crisis.

Statement 2 is incorrect. Teaser loans in India are primarily associated with retail loans, particularly home loans, not predominantly with loans to inexperienced entrepreneurs for manufacturing or export units. While banks lend to entrepreneurs, the "teaser loan" concern typically relates to individual consumers taking on debt they might struggle to service after the initial low-rate period.

Therefore, only statement 1 is correct.