Question 29 from UPSC CSE 2024 - Current Affairs (Economic s)

Question

Consider the following statements:
1. Syndicated lending spreads the risk of borrower default across multiple lenders.
2. 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?

Accepted Answer

Correct Option: C. Statement-I is correct, but Statement-II is incorrect

Strategy: Identify statement 1 as consistent with syndicated loan principles, where multiple lenders spread default risk. For statement 2, recognize the extremity of claiming 'cannot be a credit line,' as credit lines are common in syndicated lending. Conclude statement 2 is incorrect and select the option reflecting this without further analysis of statement 1's details.

Key Info: A syndicated loan is a financing arrangement where a group of lenders (syndicate) provides funds to a single borrower. The main objectives are to spread credit risk and facilitate funding for large or complex projects beyond a single lender's capacity. The lead bank or arranger coordinates the syndicate, sets terms, and administers the loan.

### Key Features
- Syndicated loans can take various forms: fixed (term) loans, revolving credit facilities (credit lines), or a combination of both.
- This structure is prevalent in project finance, corporate acquisitions, infrastructure, and sovereign loans.
- Lenders share repayment schedules and exposure, thus mitigating individual institutional risk.
- The facility agreement outlines details such as interest rates, roles of lenders, collateral terms, and default procedures.

Examples in recent Indian context include large syndicated social loan facilities by public and private sector entities. The arrangement is governed by terms agreed upon by all participating institutions and often includes both fixed and revolving components to serve different fundraising or liquidity needs.

Answer

Option A: Both Statement-I and Statement-II are correct and Statement-II explains Statement-I

Answer

Option B: Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I

Answer

Option D: Statement-I is incorrect, but Statement-II is correct

Consider the following statements: Syndicated lending spreads the risk of borrower default across multiple lenders. 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?

Consider the following statements:

Syndicated lending spreads the risk of borrower default across multiple lenders.

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?