ONGC opposes Fin Min directive on surplus funds
New Delhi: Oil and Natural Gas Corp (ONGC) has opposed Finance Ministry directive of parking its surplus funds with only PSU banks saying it is losing Rs 360 crore of interest revenues annually as state-run banks offer lower interest rates when business is given to them on nomination.
ONGC, which has a cash surplus of about Rs 18,000 crore, till last year asked banks on its panel to quote interest rates they would offer for short-term deposits but had to discontinue with the practice after the Finance Ministry directive aimed at helping banks like the State Bank of India.
Company Chairman and Managing Director R S Sharma earlier this month wrote to the government saying the public sector banks offered "substantially lower rates of interest on bulk deposits as compared to the retail deposits."
Other state-run firms like Bharat Sanchar Nigam Ltd (BSNL), Bharat Heavy Electricals Ltd and NTPC Ltd too have opposed the directive as state-run banks, being assured of the business, did not follow a uniform card rate and offered interest rates not only lower than private sector competition but also less than the rate they pay for retail deposits.
Prevailing card rates are about 200 basis points lower than the rates ONGC obtained through competitive bidding, thus losing about Rs 360 crore annually on interest revenue in the absence of bidding process, he wrote.
ONGC wanted the Finance Ministry guideline to be scrapped.
ONGC wanted a review of the guidelines prohibiting PSUs from inviting bids for placing bulk deposits with banks saying competitive bidding ensures that human discretion is eliminated and favouritism avoided.
It also pointed that about 86 percent of deposits of ONGC were with public sector banks.
"ONGC being a listed company with a large number of minority shareholders including Foreign Institutional Investors, the continuation of non-transparent practices detrimental to its commercial interest," Sharma wrote.
He said the interest spread - the difference between the banks` lending rate and the deposit rate - has gone up significantly while the inflation rate has been contained.
"Thus the fear of increasing rates of interest having an inflationary effect does not hold good any more."
He said SBI`s bulk deposit interest rate for one year maturity has come down from 8.75 percent per annum in January 2008 to 5 percent while its lending rate has come down from 13.25 percent in January 2008 to 11.75 percent. "This has resulted in a substantial increase in the bank`s spread from 4.5 percent to 6.75 percent - an increase of more than 38 percent."
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