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Q52 (IAS/2024) Economy › Money, Banking & Inflation › Banking operations services Official Key

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 ?

Result
Your answer: —  ·  Correct: C
Explanation

**Statement-I is correct**: A syndicated loan is a credit facility or fixed loan amount offered by a pool of lenders, which are collectively referred to as syndicates.[1] By definition, when multiple lenders participate in a syndicate, the risk of borrower default is naturally distributed among them rather than being concentrated with a single lender.

**Statement-II is incorrect**: Syndicated loans are structured as credit lines or as fixed amounts.[3] This directly contradicts Statement-II's claim that syndicated loans "cannot be a credit line." In fact, syndicated loans can take either form – they can be structured as fixed-amount term loans or as revolving credit lines (revolvers), giving borrowers flexibility in how they access the funds.

Since Statement-I is correct but Statement-II is incorrect, **option C** is the right answer.

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Q. Consider the following statements : Statement-I : Syndicated lending spreads the risk of borrower default across multiple lenders. Stat…
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 3.3/10 · 6.7/10
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This is a classic 'Definition + Feature' question. Statement I is intuitive (Syndicate = Group = Shared Risk). Statement II is a 'Technical Trap' using an extreme negative ('cannot'). While specific books don't explicitly list syndicated loan types, the logic of financial markets (flexibility) allows you to eliminate the restriction in S2.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Does syndicated lending spread the risk of borrower default across multiple lenders?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.9 RBI Circular (June 2019) on Resolution of NPAs > p. 138
Presence: 5/5
“Once a borrower is reported to be in default, lenders should start a review of the borrower account within 30 days of the default. "During this review period of thirty days, lenders may decide on the resolution strategy, including the nature of the resolution plan (RP), the approach for implementation of the RP. If the RP is to be implemented, lenders have been asked to enter into an inter-creditor agreement (ICA), within the review period, to provide for ground rules for finalization and implementation of the RP. The ICA shall provide that any decision agreed by lenders representing 75% by value of total outstanding credit facilities and 60% of lenders by number shall be binding upon all the lenders.”
Why this source?
  • Describes a review process when a borrower defaults that involves lenders acting together and entering an inter-creditor agreement (ICA).
  • ICA provisions make decisions by a qualifying majority binding on all lenders, implying lenders share exposure and coordinate loss resolution.
  • The need for an ICA implies credit is provided by several lenders rather than a single creditor, so default risk is managed collectively.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 3. Co-Lending model by banks and NBFCs > p. 73
Presence: 4/5
“NBFCs often face challenges in getting cheaper access to funds for lending purposes, which in turn results into higher interest rates for their borrowers and hence less demand for their loans; whereas large commercial banks find it difficult and expensive to extend their reach to certain locations, where the NBFCs have a stronger presence. Co-lending helps in bridging these gaps.• 3. The co-lending model empowers multiple stakeholders of the lending ecosystem. While NBFCs can leverage their strong presence in local markets, commercial banks have the cheap availability of funds for credit disbursal.”
Why this source?
  • Explains the co-lending model where banks and NBFCs jointly fund loans, each contributing different strengths (funds vs. local reach).
  • Joint funding by bank and NBFC implies credit exposure and associated risk are split across the participating institutions.
  • Emphasis on empowering various stakeholders shows lending obligations and risks are shared among participants.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Peer to Peer (P2P) Lender > p. 85
Presence: 4/5
“P2P intermediaries are new class of NBFCs that provide the platform which pairs borrowers and individual lenders. With P2P lending, borrowers take loans from individual investors who are willing to lend their own money for an agreed interest rate. The profile of a borrower is usually displayed on a P2P online platform where investors can reassess these profiles to determine whether they want to risk lending money to a borrower. The repayments are also made through the NBFC-P2P which processes and forwards the payments to the lenders who invested in the loan. P2P lending is also called social lending or crowd lending.”
Why this source?
  • Defines P2P lending as a platform that pairs borrowers with individual investors who lend their own money.
  • Borrowers receive funds from a pool of individual lenders and repayments are forwarded to those lenders, so credit risk is dispersed across investors.
  • The model's structure contrasts single-lender loans by allocating default exposure to many small creditors.
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Statement analysis

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