UPSC Previous Year Question | Prelims GS | 2024

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?

  1. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  2. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  3. Statement-I is correct, but Statement-II is incorrect
  4. Statement-I is incorrect, but Statement-II is correct

Answer

Correct Answer

Statement-I is correct, but Statement-II is incorrect

Explanation

Statement I is correct: syndicated lending involves multiple lenders financing a borrower under a common arrangement, allowing credit exposure and default risk to be shared. Statement II is incorrect because a syndicated facility need not be limited to a one-time lump-sum loan. It can also be structured as a revolving credit facility or credit line, allowing the borrower to draw funds as needed under agreed terms. Therefore, Statement I is correct and Statement II is incorrect.

Topics: banking and credit, indian economy, loan structure and risk sharing, syndicated lending