Excess liquidity, which was burden for banks even a year ago, is fast running down on the back of the strong private sector credit growth.

All liquidity available in the banking system that exceeds the needs of banks is called excess liquidity.

At the end of March, the total excess liquidity in the banking system stood at Tk 76,890 crore, down 31 percent from a year earlier.

Of the Tk 35,110 crore of excess liquidity that was drained, Tk 16,400 crore went just in the first three months of 2018, when banks faced a cash crunch amid a deposit withdrawal trend brought about by Farmers Bank's precarious financial standing.

The banking sector's excess liquidity has been declining in recent months, suggesting the need for aligning the credit growth in line with the deposit growth, said the Bangladesh Bank in its January-March quarterly report.

At the end of fiscal 2017-18, private sector credit growth stood at 17 percent and the deposit growth 10.3 percent, according to the BB. In 2015, credit growth was 12.7 percent against the deposit growth of 12.6 percent.

Mismatch between deposit and credit growth is causing the ongoing liquidity crisis to linger, found a survey of the Bangladesh Institute of Bank Management titled 'Treasury Operations of Banks 2017'.

The mismatch is also causing the excess liquidity to lessen, the survey added.

Towards the end of last year, many bankers apprehended difficulties in liquidity management in 2018.

An increasing trend in private sector credit growth, large import payments and declining depositor confidence in the banking sector may erode banks' liquidity base in 2018, Syed Mahbubur Rahman, managing director of Dhaka Bank, had told The Daily Star in December last year.

Private banks' excess liquidity has shrunk faster than the state banks', thanks to Farmers Bank's failure to return depositors' money, setting off panic among the general public.

At the end of March, private banks' excess liquidity diminished 40 percent year-on-year to Tk 21,100 crore, according to data from the central bank. In contrast, state banks' excess liquidity depleted 33 percent to Tk 42,100 crore.

Many small depositors withdrew money from private banks and parked the funds in savings instruments, causing a sharp decline in excess liquidity, said a senior executive of a private bank.