PSUs to lose out on interest

Public sector companies may continue to lose interest income on their idle deposits as the government has decided against allowing banks to bid for their bulk deposits. Top public sector undertakings, sitting on surplus cash of over Rs 1,00,000 crore (Rs 1,000 billion), have been demanding re-start of the bidding as it ensures higher interest rates.

"We are not going to allow bidding for bulk deposits," a finance ministry official told Business Standard.

According to a government directive, PSUs have to park 60 per cent of their surplus funds with state-owned banks. Earlier, PSUs used to park funds with banks that offered them the highest rates. In November last year, when interest rates were high, the government asked banks to stop bidding for such high-cost deposits.

Since then, banks have been taking bulk deposits at card rates, that is, rates that are offered to retail depositors.

However, PSUs want the government to allow bidding for bulk deposits as their administrative cost is lower than the cost of keeping retail deposits.

All large PSUs, including Bharat Sanchar Nigam Ltd, Bharat Heavy Electricals, NTPC and Steel Authority of India, have opposed the card-rate system. Oil exploration major ONGC has written four letters to the petroleum ministry and the Department of Public Enterprises over the last five months asking them to take up the matter with the finance ministry. The last letter was sent a month ago.

"We have been requesting the government to resume the bidding process as the economic scenario has changed in the last one year. Bidding is a transparent mechanism," said an ONGC executive.

ONGC has a cash surplus of Rs 16,000 crore (Rs 160 billion) and says it is losing about Rs 300 crore (Rs 3 billion) annually due to a reduction in deposit rates. The average rate offered by banks on a one-year deposit is 5 per cent, whereas PSUs were getting up to 12 per cent through the bidding route. PSUs have also complained that bulk deposit rates are lower than retail deposit rates.

"All major PSUs are trying hard to get back to the system of competitive bidding for bulk deposits, but the finance ministry has put its foot down," said a public sector bank executive.

An executive with another bank said: "Our cost of deposits came down after we started giving card rates. It will come down further when all such high-cost deposits mature. There is enough liquidity now and we need not take deposits at higher rates when cheaper options are available."