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?

The correct option is: Statement-I is correct, but Statement-II is incorrect.

Let us break down the reasoning behind each statement to understand why this is the correct answer:

1. Analysis of Statement-I:
Syndicated lending is a financing arrangement where a group of financial institutions (the syndicate) cooperatively funds a single large borrower, typically for major corporate projects, acquisitions, or infrastructure development. Since the total loan value is shared among multiple lenders according to their agreed participation shares, the potential loss from borrower default is distributed. This prevents any single bank or lender from absorbing the entire financial hit, thereby effectively spreading the default risk. Thus, Statement-I is correct.

2. Analysis of Statement-II:
Syndicated loans are highly flexible financial instruments and are not restricted only to fixed-amount term loans. They can be structured in various ways, including as term loans (lump-sum disbursements), revolving credit facilities (credit lines that allow the borrower to draw, repay, and redraw funds up to a limit), or a combination of both. Since a syndicated loan can indeed be a credit line, the assertion that it cannot be a credit line is false. Thus, Statement-II is incorrect.

Therefore, Statement-I is correct, but Statement-II is incorrect.