Rajan’s comments were made in India’s financial capital in a speech on Thursday to central bank governors from the nations of the South Asian Association for Regional Cooperation (SAARC) grouping, the RBI said in a statement.
“Bad loans in the banking system were likely to grow over current levels, and, in addition, there might be serious weaknesses in the shadow banking system, which could feed back to banks,” the RBI summarised Rajan as saying on China.
“Both could be significant downside risks as they could have second round effects for SAARC economies. Chinese growth would depend not just on its policies, but also on growth elsewhere in the world.”
A “sharp” slowdown of the Chinese economy “still remained a significant risk for the global economy and the SAARC region,” Rajan added, according to the RBI.
The RBI governor has previously warned of the potential spillover effect from China’s economy to other countries, including India.