While the city needs 2.2 billion liters of water a day, it can only produce 1.9 million-2 billion, says Dhaka's Water Supply and Sewerage Authority.
WASA Managing Director Taksim A Khan said that Dhaka's groundwater level is depleting by 3 feet a year, the Financial Express newspaper reports.
Shortages were so severe this month that some areas of Dhaka had no water for several days, prompting protests from residents.
Rains in mid-April improved the situation but experts say the problem of inadequate water is likely to continue.
"The source of water is not properly managed, which will put the city at risk of severe water shortage(s) in the future," water expert Mujibur Rahman told IRIN, the news service of the United Nations Office for the Coordination of Humanitarian Affairs, noting that the city heavily relies on hundreds of tube wells to extract more water.
Residents in some areas of Dhaka said that when there is a supply of water from WASA, it is too dirty and unfit for consumption.
"Even despite boiling it for more than an hour, the bad smell doesn't go," a Dhaka resident told the Financial Express newspaper, adding that the water retains a yellow-red color.
"Stronger action is needed now. Government steps in addressing this problem to date have been inadequate," Khairul Islam, country representative of WaterAid in Bangladesh, was quoted as saying by IRIN.
Dhaka's water problems stem mostly from an over-dependence on ground water and the World Bank notes that the city obtains most of its water from over-exploited aquifers.
Water experts have called for the city to increase usage of surface water sources such as ponds, rivers and canals.
"Initiatives to cut the dependency and [increase] use of surface water should have been taken much earlier," IRIN quoted water expert Feroze Ahmed as saying.
But water problems are not just limited to Dhaka. The World Bank says that more than 80 million people in Bangladesh are potentially exposed to arsenic contamination.
The government of Bangladesh earlier this month signed a $75 million financing agreement with the World Bank for a project aimed at supplying safe water for around 1.6 million people living in rural areas where water supplies have high arsenic or salt content.
"We are scaling up a private-public partnership model with a proven track record of delivering safe water to rural populations," Ellen Goldstein, country director, World Bank Bangladesh, said in a statement.