Q. Consider the following statements:
Statement-I: Syndicated lending spreads the risk of borrower default across multiple lenders.
Statement-II: The syndicated loan can be a fixed amount/lump sum of funds, but cannot be a credit line.
Which one of the following is correct in respect of the above statements?
(a) Both Statement-I and Statement-II are Statement-II explains correct and Statement-I
(b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
(c) Statement-I is correct, but Statement-II is incorrect
(d) Statement-I is incorrect, but Statement-II is correct
Correct answer: (c) Statement-I is correct, but Statement-II is incorrect
Question from UPSC Prelims 2024 GS Paper
Explanation:
Statement-I: “Syndicated lending spreads the risk of borrower default across multiple lenders.”
This statement is correct. In syndicated lending, multiple lenders come together to provide a loan to a single borrower. By doing so, they share the risk of default, as each lender is only responsible for their portion of the loan. This risk-sharing is one of the primary benefits of syndicated lending.
Statement-II: “The syndicated loan can be a fixed amount/lump sum of funds, but cannot be a credit line.”
This statement is incorrect. Syndicated loans can actually take various forms, including both term loans (fixed amount/lump sum) and revolving credit facilities (credit lines). In fact, many syndicated loans are structured as a combination of both term loans and revolving credit facilities.