Q. 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? (UPSC Prelims 2024)
Answer: Statement-I is correct, but Statement-II is incorrect
Notes: The correct answer is [C] Statement-I is correct, but Statement-II is incorrect. This question focuses on the structural mechanics of corporate finance and debt markets.

• Statement-I is correct: Syndicated lending involves a group of lenders (the syndicate) jointly providing funds to a single borrower. By dividing the total loan amount among multiple banks or financial institutions, the exposure of any single lender is limited. If the borrower defaults, the loss is distributed across the group, effectively spreading the credit risk.
• Statement-II is incorrect: Syndicated loans are highly flexible. They can indeed be structured as a term loan (a fixed lump sum paid back over time), but they can also be structured as a revolving credit line (where the borrower can draw down, repay, and redraw funds up to a limit). Often, a single "syndicated facility" includes both a term loan component and a revolving credit line component.

Key Context: In a syndicated loan, one "lead bank" (the arranger) typically structures the deal and administers the loan, while the other participants provide the capital. This mechanism is essential for massive infrastructure projects or large corporate acquisitions where the capital required exceeds the risk appetite or legal lending limit of a single bank.