Banking · Retail Asset Products
A business owner avails an Overdraft Loan Against Property (LAP) against a self-occupied residential property. Which of the following best describes the core risk and feature associated with this retail asset product?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The SARFAESI Act cannot be applied to LAP because the property is pledged for business purposes.
- 2Since it is an overdraft, the borrower pays no interest as long as property value remains above the loan limit.
- 3The bank faces 'Purpose Risk' if funds are diverted to speculative activities, and the interest rate is higher than a standard home loan.✓
- 4The interest rate for LAP is typically lower than a home loan because it is used for business purposes.
Correct answer
The bank faces 'Purpose Risk' if funds are diverted to speculative activities, and the interest rate is higher than a standard home loan.
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