After enduring a serious cash crunch since the middle of 2017, the banking sector has started to witness a sharp rise in excess liquidity.

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

The excess liquidity went up 27 percent in the second quarter this year in comparison to the previous quarter thanks to the relaxing of the cash reserve requirement (CRR).

Banks were sitting on an additional liquidity of Tk 97,500 crore at the end of June, up from Tk 76,900 crore in March, according to Bangladesh Bank's latest data.

On April 4, the central bank reduced the CRR by one percentage point to 5.5 percent to ease the liquidity condition.

The regulatory requirement was revised down at a time when the banking sector was experiencing a liquidity mismatch in January-March quarter of 2017-18, said Bangladesh Bank in its quarterly report for April-June.

The reduction of the CRR eased the liquidity condition, it observed.

The increased availability of cash has helped banks revise down the lending rate by 1 to 2 percentage points in the last two months.

Currently, banks are lending at 10 percent to 11 percent, which was more than 13 percent several months ago. Though the CRR was reduced following commitments from the directors of banks that they would bring down the lending rate of all loans to single-digit, many lenders were still giving out loans at double digits.

For instance, state-owned Rupali Bank is giving out industrial loans at single digits, but the consumer loan is still charging 13 percent rate.

The bank has cut the interest rate to single digits only for industrial loans, said a senior executive of Rupali Bank. It is now planning to adjust the interest rate of other products in line with the government's verbal instruction, he added.

The interest rate on home loans has come down to 9 percent to 10 percent in the recent months, which had gone up to 13 percent in February amid the cash crunch, said QM Shariful Ala, managing director of Delta Brac Housing Finance Corporation.

He said banks and financial institutions revised the interest rate down by one or two percentage points after the liquidity crisis eased.

State banks held 55 percent of the total excess liquidity in the financial market: the excess cash at the state banks stood at Tk 53,500 crore in June, 27 percent higher from Tk 42,100 crore in March.

Private commercial banks have had Tk 31,200 crore in excess liquidity in June, accounting for 32 percent of the total.

Though the excess liquidity of private banks surged 47.58 percent in June from Tk 21,100 crore in March, the average lending rate of most of the private lenders is still at double digits.

The weighted average lending rate of 29 private banks was in double digits as of August, BB data showed.

The new banks are offering loans at higher interest rates compared to other lenders.

For example, the average lending rate of NRB Global Bank, one of the new banks that were licenced in 2013, was 13.77 percent in August, the highest among all banks, according to the BB data.