Why save more if we get less?

Total deposits in banks in India crossed Rs 100 trillion in September. Bank lending crossed Rs 75 trillion. The deposit to GDP ratio has grown from 45.43% in March 2001 to 71.21% in March 2016, which is higher than most countries and also the global average, according to the International Monetary Fund. Credit to GDP ratio has grown from 24.3% in March 2001 to 55.25% in March 2016. Why is lending lagging behind savings rate? Because banks have to hold 20.75% of deposits in government securities, which is known as Statutory Liquidity ratio. Banks also have to hold 4% of deposits in cash, known as the Cash Reserve Ratio. These are safeguards to protect depositors in case banks run into financial difficulties. The other reason why banks are afraid to lend is because they are sitting on a huge pile of potentially bad loans. Stressed loans at Indian banks amount to a humongous Rs 13 trillion and Non-Performing Assets, as bad loans are called, amount to Rs 4.8-5.3 trillion or  6.2-6.8% of assets. According to Credit Suisse, $29 billion worth of loans are chronically stressed, out of a total debt of $58 billion on the books of Indian Banks, but banks have recognised only $6 billion as bad debt. Public sector banks are mainly affected, with some declaring NPAs of over 17%. Indian banks have the lowest Tier 1 capital in Asia at 10%, the highest ratio of NPAs at 5.88% and returns on assets are second worst at 0.45%. The trouble is that people are saving less. Savings rate has fallen to 30.2% of GDP which means banks will have less money to lend after setting aside enough funds to write off their bad loans. People are unable to save because of high prices and the falling interest rate. The previous Governor of the Reserve Bank, Raghuram Rajan wanted a real interest rate of 1.5-2%, which means that savers should get at least 150-200 basis points above the rate of retail inflation, bu the present Governor has reduced that to 1.25%, so people get less interest on their savings. Which means that they are able to spend less and save less. Naturally, to hedge against inflation people resort to buying gold, which leads to increased smuggling. The government needs new investments to increase jobs and for that it needs banks to lend more. But banks cannot lend unless they have enough funds after covering their bad loans. They need more savings but people need more income so they are investing in riskier assets, such as stocks and mutual funds. It has to be a huge mess if even Rs 100 trillion is not enough. Scary.