- led growth model to a consumption - led model. combined with the previous bouts of leveraged expansion, china now has a number of sectors that suffer from the twin ailments of overcapacity and high leverage. bad loans in the banking system are likely to grow over current levels – stressed loans are estimated to be around 5. 5 % of the bank loan book today. in addition, there may be serious weaknesses in the shadow banking system, which could feed back to banks. clearly, cleaning up the financial system will be a challenging but necessary task. work at the imf suggests that a 1 - percent permanent negative shock to china gdp caused by one - off 1 - percentage decline in its real gdp growth will knock off 0. 23 percentage points from global growth in the short - run 3. a key question is whether we in saarc region are at significantly more risk than others. the answer probably is no because none of us is primarily commodity exporter to china, but it cannot be an unqualified one. trade could be impacted due to second round effects – we export to those who traditionally export to china and have thus slowed down – and due to similarity in trade patterns with china – we compete with those who now have excess production capacity. on the financial side, exposure to china is large for the asia - pacific banks, especially for banks from hong kong, singapore and australia and much less for banks from our region. however, some of our countries, though not india, have significant borrowing from chinese banks, and these borrowings could become costlier if chinese banks turn inwards. moreover, financial market losses in china can heighten the risk premia that industrial country investors will charge for investing in our region, and the result could be capital outflows of the kind that were seen last august and early this year. chinese growth will depend not just on its policies, but on growth elsewhere in the world. there appears to be a general consensus that global growth has been too slow for too long. the imf downgraded its outlook for global growth in 2016 and 2017 by 0. 2 and 0. 1 percentage points, respectively. it is true that downside risks and uncertainties to the global outlook are large in the backdrop of event risks i have alluded to. however, a more careful look at the data suggests some care in jumping to the conclusion that growth has been slow. global growth has averaged 3. 5 per cent since 1980 and, in

even in regard to the structural measures. the intention is to express purely exploratory technical views in five of the areas that are critical, namely, financial sector, regulatory framework, public enterprises, delivery of public services, and overhang issues. these do not in any way constitute the official position of rbi. advisory on financial sector restructuring it is useful to understand some features of the financial system in india. most of the financial savings still comprise deposits to the banking sector, with some perceptible flow to life insurance, mutual funds, government small savings and provident funds. about three quarters of the banking deposits go to government owned banks that currently have invested over one - third of the assets in government securities and a perceptible amount in psu bonds, development financial institutions cooperatives and government guaranteed enterprises. this gives place to a criticism that government owned banks are operating as instruments to finance high public sector deficits. similar arguments can be advanced in respect of the largest mutual fund, viz., the unit trust of india and the insurance giant life insurance corporation of india not to mention the general insurance corporation. while industrial development bank of india is a public sector statutory corporation, industrial finance corporation of india ’ s major shareholding is by government owned institutions. industrial credit and investment corporation of india is a public financial institution and hence has a special status accorded by government. while public tend to repose confidence in these institutions by virtue of their status as government - owned or backed entities, there is corresponding implicit direct obligation on the part of the government to protect the interests of depositors / investors. in other words, any vulnerability in regard to these institutions has an impact on government ’ s finances. such a reasonable expectation is not only justified on the consideration of the concept of " holding out " a backing, but also by the obligations discharged in the past by government of india in several cases including the case of canfina through canara bank. the regulators of financial sector have some additional complexities in relation to public sector entities. first, in the case of statutory bodies including public sector banks, there are certain regulatory constraints. for instance, both for reasons of legality and reputational risk, the regulator cannot cancel a licence, say to a public sector bank, even if it fails to meet capital adequacy norms. the recourse open to the regulator in the case of owner ’ s unwillingness to inject capital to meet capital adequacy standards is unclear