Consider the following statements:

1. Statement-l: Syndicated lending spreads the risk of borrower default across multiple lenders.
2. Statement-II: The syndicated loan can be 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 incorrect
4. Statement-I is incorrect, but Statement-II is correct

Explanation

Statement 1 is correct

• A syndicated loan is a large loan extended to a major borrower by a group of lenders working together. This arrangement helps distribute the risk, ensuring that no single lender is solely responsible for the entire amount if the borrower defaults.
• As a result, the risk of default is shared among multiple lenders, reducing individual exposure.
• Banks can give loans in the local currency viz. Indian Rupee or in foreign currencies.

Statement 2 is incorrect

• Syndicated loans can involve a fixed amount of funds, a credit line, or a combination of the two

Answer: (X) Dropped;