Consider the following statements:

Question

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 correct and Statement-II explains 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

Answer 1

(c) Statement-I is correct, but Statement-II is incorrect

Explanation:

• Statement-I: This statement is correct. Syndicated lending involves multiple lenders providing a loan to a single borrower, which helps in spreading the risk of borrower default among several lenders rather than concentrating it with one lender.

• Statement-II: This statement is incorrect. A syndicated loan can be structured in various ways, including as a fixed amount (term loan) or as a revolving credit line. Thus, syndicated loans are not limited to fixed amounts and can indeed be structured as a credit line.

Therefore, the correct answer is (c) Statement-I is correct, but Statement-II is incorrect.