UPSC Prelims 2024 · Question 32 of 97
UPSC Prelims 2024 question on Syndicated Lending
- ExamUPSC CSE
- Year2024
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicBanking
- DifficultyHard
- TypeAssertion
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?
Show answer
Answer: C. Statement-I is correct, but Statement-II is incorrect
Statement I – CORRECT: A syndicated loan is a form of financing that is offered by a group of lenders. Syndicated loans arise when a project requires too large a loan for a single lender or when a project needs a specialized lender with expertise in a specific asset class. Syndicating allows lenders to spread risk and take part in financial opportunities that may be too large for their individual capital base. Hence statement-I is correct.
Statement II – INCORRECT: The borrower can be a corporation, a large project, or a sovereign government. The loan can involve a fixed amount of funds, a credit line, or a combination of the two. Therefore the claim that syndicated loans cannot be a credit line is incorrect. Hence statement-II is not correct.
Statement-I is correct but Statement-II is incorrect → Option (c).