Oil and Natural Gas Corporation has opposed finance ministry's directive asking it to stop inviting competitive bids from banks for parking surplus funds as it may lose Rs 400 crore (Rs 4 billion) in interest revenues annually.
ONGC, which has cash surplus of about Rs 25,000 crore (Rs 250 billion), at present asks banks on its panel to quote interest rates they would offer for short-term deposits. However, the finance ministry wants this practice to be stopped and business given to state-run banks on nomination basis.
The card rates of banks published on their websites are not applicable for bulk deposits for which banks quote the rates on demand, a senior company official said.
Prevailing card rates would be about 200 basis points lower than the rates the company obtained through competitive bidding and ONGC would thus lose about Rs 400 crore annually on interest revenue in the absence of bidding process.
But for competitive quotes, ONGC has no other method of knowing the best rates available, the official said.
ONGC, he said, followed the guidelines laid by the department of public enterprises for investment of surplus funds. DPE following the stock market scam had laid down maximum safety, no element of speculation and proper commercial appreciation as principles for investing surplus funds.
Competitive bidding ensures that human discretion is eliminated and favouritism avoided, the official said, while pointing that about 86 per cent of deposits of ONGC were with public sector banks.
The finance ministry guidelines apparently were aimed at helping State Bank of India which lost out on getting business from ONGC as other state-run banks quoted aggressively.
ONGC Chairman and Managing Director R S Sharma recently wrote to the petroleum ministry saying the finance ministry's directive would lead to "unethical" practices like favouritism towards a particular bank.
"The process of making decisions for investment of short-term surplus funds without inviting competitive bids will lack transparency and is liable to come in conflict with the approach of the CVC and CAG," he wrote.
Sharma said about 86 per cent of the ONGC's deposits were with public sector banks and the company strictly followed DPE guidelines for investment of surplus funds.
A Joint Parliamentary Committee, which enquired into the stock market scam of early 1990s, had adversely commented on certain investment decisions made by certain state firms and had asked the government to lay down clear guidelines for investment of surplus funds to avoid recurrence.
"DPE guidelines for investment of surplus funds were based on the recommendations of the JPC constituted to enquire into the irregularities in securities transaction made by certain Public Sector Enterprises.
The requirement of dispensing with bidding process may be against the recommendations of JPC," Sharma wrote.