Project Report - Meenu

A PROJECT REPORT ON
“THE STUDY OF SHORT TERM INVESTMENT POLICY OF ONGC”
A SUMMER PROJECT STUDY SUBMITTED IN PARTIAL FULFILLMENT

FOR THE REQUIREMENT OF THE TWO YEAR POST GRADUATE DIPLOMA
IN MANAGEMENT (FULL-TIME)
SUBMITTED BY
NAME: MEENU
ROLL NO: 15/029
CLASS: PGDM (1A)
BATCH: 2007-09
APEEJAY SCHOOL OF MANAGEMENT, DWARKA, NEW DELHI

Oil & Natural Gas Corporation Ltd.
ACKNOWLEDGEMENT
A task or a project cannot be completed alone. It requires the efforts of many individuals.
It is a great pleasure for me to have the opportunity to extend thanks to everybody who
helped me through the successful completion of this summer internship project in ONGC
without the help of whom, this project would have been difficult to complete.
At first, I thank ONGC Ltd. for giving me such challenging projects to work upon. I
hope this challenge has brought best out of me.
I am indebted to my Company guides Mr.D.S.Misra, CM (F&A), Mr. Amarjeet Singh

Yadav, (F&A) Officer in ONGC, for the direction and purpose he gave to the project
through his invaluable insights, which constantly inspired me to think beyond the
obvious. His support and encouragement helped me to look at the project from different
aspects.
I express my deep sense of gratitude to my college guide Mr.Avijit.Chakravarti, for

guiding me in the completion of the report since the initial stage of my projects.
I am also thankful to all the employees of ONGC who were very cooperative and
provided their maximum support to me in the completion of the report.
Finally, I express my thankfulness to all those who have directly or indirectly contributed
towards the successful completion of this report.
The project was a tough journey but a learning experience.
Meenu (!5/029-PGDM 1A)

Apeejay School of Management, Dwarka, New Delhi.
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TABLE OF CONTENTS
S.No. TOPIC PAGE No.

1. Executive Summary 4
2. Introduction to the topic of Study 5-6
3. Industry & Company Profile with Organization Chart 7-14
4. SWOT Analysis of the Company 15
5. Research Methodology 16
6. DPE Guidelines 17-18
7. CRISIL Report 19-31
8. Procedure of Investment of Surplus Funds 32-38
9. Permitted Investment Avenues 39-40
10. Investment Policy-Exposure Limits 41
11. Analysis of Investment Instruments 42-55
11.1 FDs with Scheduled Commercial Banks 43-46
11.2 Inter-corporate Deposits 47-49
11.3 Investments in Mutual Fund Schemes 50-52
11.4 Liquid TDRs with SBI (ONGC) main banker 53
11.5 Certificate of Deposits of banks & other Financial 53
Institutions
11.6 Commercial Papers/ Corporate Bonds 54
11.7 Government Securities and Treasury Bills 55
12. Findings 56-58
13. Recommendations 59-62
14. Conclusion 63
15. Learning 64
16. Annexures 65-73
17. Bibliography 74
18. Glossary 75
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EXECUTIVE SUMMARY
Oil and Natural Gas Corporation Limited (ONGC) is engaged in the business of
exploration and drilling of crude oil and natural gas. It is one of the most recognized
PSE in India. It is world’s second biggest Exploration & Production (E&P) Company.
Treasury Management (TM) in ONGC is a crucial function because; Treasury
Management Group takes care of cash management, liquidity management, risk
management, etc. ONGC invests its short-term surplus funds in different investment
avenues through out the year. Since the surplus cash of the Company ahs been
earmarked for future expansion plans and acquisition of assets, it is imperative for the
Company to maintain adequate liquidity in its investment portfolio. The Company also
recognizes that investment management is not its core business function and
accordingly protection of capital is a key driver for investment decisions. Accordingly,
the Company currently invests with a horizon of one year and deposits are placed with
banks that have a minimum external credit rating of ‘A’.
This reports talks about the review of investment policy; different investment avenues;
risk management, with respect to these investments.
Being a PSE, ONGC follows the Department of Public Enterprises (DPE) guidelines to
park its idle funds. Currently, the Company is investing in FDs with banks, ICDs to
Central PSEs, UTI Liquid funds for 6 days and in Liquid TDRs with SBI its main
banker.
ONGC has appointed different agencies from time-to-time to review its investment
procedure. It has appointed Price Waterhouse Coopers in 2001, CRISIL in 2002 and E&Y
in 2007. CRISIL used a transparent and standardized methodology to review its
investment procedure and to provide risk based limit structure for banks. It also used a
model popularly known as CRAMEL model to determine the risk limit for banks i.e. the
maximum limit up to which ONGC should invest in each bank.
The report also talks about the some other options, which the company can consider to
invest its surplus funds.
The report ends by concluding the findings and recommendations of this project followed
by attaching some annexures and bibliography.
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INTRODUCTION TO THE TOPIC OF STUDY: (STUDY OF SHORT TERM
INVESTMENT POLICY OF ONGC)
TREASURY MANAGEMENT (TM)
INTRODUCTION
TM is the area, which was linked with the accounting related activities till some years
back. But now the focus has been completely shifted from accounting activities to
decision-making activities.
TM is fast emerging as a specialization in many companies and the accounting function is
being de-linked from the finance function. Highly focused knowledge of capital markets,
money markets, instruments and investment avenues, treasury and risk management and
related areas, has become essential for managing the treasury, profit center.
MEANING OF TREASURY MANAGEMENT
TM generally refers to the set of policies, strategies and transactions that a company
adopts and implements to raise finance at acceptable cost and risk, to manage its cash
resources, and to reduce interest rate, foreign exchange and commodity price risks, as
well as in the conduct of its relationships with its financial stakeholders (mainly banks).
So, in simple terms TM is management of an organization’s total wealth (Resources)

management, from the viewpoint of liquidity, safety and returns in tune with its mission/
business objectives and in consonance with a regulatory framework to achieve the interest
of all its stakeholders. It includes management of cash flows, banking, money market, and
capital market transactions, the effective control of the risks associated with those
activities and the pursuit of optimum performance consistent with those risks.
The scope of work involved under treasury management differs for banks, financial
institutions and other organizations. Normally, TM is linked with bank and financial
institutions where it involves many functions:
• Investment Management
• Liquidity Risk Management
• Cash Management
• Interest Risk Management
• Currency Risk Management
• Equity Risk Management
• Commodity Risk Management
But, now days, other organizations are also putting focus on TM, though their scope may
be limited as compared to Banking Institutions. Remarkable changes have taken place in
the field of TM in the last decade. Today, the primary goal of a treasurer is to pursue
investment decision in line with overall goals of a company. In an attempt to maximize
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the earnings, the treasurer is required to provide appropriate decision making tools and
optimize the liquidity position of the organization.
TREASURY MANAGEMENT IN ONGC (INVESTMENT OF SHORT TERM

SURPLUS FUNDS OF ONGC)
Treasury department in ONGC has been involved in different activities. It takes care of
the Cash Management, Working Capital Management and Investment of Short-term
Surplus Funds apart from some routine nature of work like approving expenses, bills, etc.
Investment of Short-term surplus funds is the main function of treasury department in
ONGC. While taking decision regarding investment, various other factors like
maintaining liquidity (Cash Management), taking care of future requirements of funds
etc, are kept in mind.
These factors are required to be always considered to ensure availability of required funds
in proper time to ensure smooth conduct of the business of the Company and to deploy
the surplus funds of the Company from time-to-time to avoid idling and generate returns
and making availability of funds whenever required in future.
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INDUSTRY PROFILE -OIL & GAS INDUSTRY
The Oil & Gas (Petroleum Industry) is usually divided into three major components:
• UPSTREAM
• MIDSTREAM
• DOWNSTREAM
UPSTREAM SECTOR
The upstream oil sector is a term commonly used to refer to the searching for and the
recovery and production of crude oil and natural gas. This sector is also known as the
Exploration and Production (E&P) Sector.
The upstream sector includes the searching for potential underground or underwater oil &
gas fields, drilling of exploratory wells, and subsequently operating the wells that recover
and bring the crude oil and/ or raw natural gas to the surface.
MIDSTREAM SECTOR
The midstream industry processes, stores, markets and transport commodities such as
crude oil, natural gas, natural gas liquids (NGLs mainly ethane, propane and butane) and
sulphur. Midstream operations are included under the downstream category.
DOWNSTREAM SECTOR
The downstream oil sector is a term commonly used to refer to the refining of crude oil,
and the selling and distribution of natural gas and products derived from crude oil. Such
products include Liquefied petroleum gas (LPG), gasoline or petrol, jet fuel, diesel oil,
and other fuel oils.
The downstream sector includes oil refineries, petrochemical plants, petroleum products
distribution, retail outlets and natural gas distribution companies. The downstream
industry touches consumers through thousands of products such as gasoline, diesel, jet
fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze,
pesticides, pharmaceuticals, natural gas and propane.
The Indian petroleum industry is one of the oldest in the world, with oil being struck at
Makum near Margherita in Assam in 1867 nine years after Col. Drake’s discovery in
Titusville. The industry has come a long way since then. For nearly fifty years after
independence, the oil sector in India has seen the growth of giant national oil companies
in a sheltered environment. A process of transition of the sector has begun since the mid-
nineties, from a state of complete protection to the phase of open competition. The years
since independence have however, seen the rapid growth of upstream and downstream oil
sectors. The sector in recent years has been characterized by rising consumption of oil
products.
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COMPANY PROFILE-OIL AND NATURAL GAS CORPORATION Ltd. (ONGC)
ONGC VISION & MISSION
To be a world class Oil and Gas Company integrated in energy business with dominant
Indian leadership and Global presence.
ONGC HISTORY
Foundation
In August 1956 Oil and Natural Gas Commission was formed. Raised from mere
directorate status to Commission, it has enhanced powers. In 1959, these powers were
further enhanced by converting the commission into a statutory body by an act of Indian
parliament. Major functions of ONGC accorded to this provision were to plan, promote,
organize and implement programs for the development of petroleum resources and the
production and sale of petroleum and its products.
1960-1990
ONGC since 1959 has made its presence noted in most parts of India and in overseas
territories. ONGC found new resources in Assam and also established the new oil
province in Cambay basin (Gujarat). In 1970 with the discovery of Bombay high (now
known as Mumbai High), ONGC went offshore. Most important contribution of ONGC,
however, is its self-reliance and development of core competence in exploration and
production activities at a global competitive level.
Post 1990
Post 1990, the liberalized economic policy was brought into effect, subsequently partial
disinvestments of government equity in PSUs were sought. As a result, ONGC was
reorganized as a limited Company and after conversion of business of the erstwhile Oil &
Natural Gas Commission to that of Oil & Natural Gas Corporation Ltd in 1993, 2% of
shares through competitive bidding were disinvested. Further expansion of equity was
done by 2% share offering to ONGC employees. Another big leap was taken in March
1999, when ONGC, OIL (Oil India Corporation) and GAIL (Gas Authority of India Ltd.)
agreed to have cross holding in each other’s stocks. Consequently Government sold off
10% of its share holding in ONGC to IOC and 2.5% to GAIL. With this the Government
holding in ONGC came down to 84.11%. In 2002-03 ONGC took over Mangalore
Refinery and Petrochemicals Ltd (MRPL) from Birla Group and announced its entrance
into retailing business. ONGC also went into global fields, through its subsidiary ONGC
Videsh Ltd (OVL). ONGC has major investments in Vietnam, Sakhalin and Sudan.
Oil and Natural Gas Corporation (ONGC) incorporated on June 23,1993, is an Indian
Public Sector petroleum Company. It is a Fortune Global 500 Company. It is highest
profit making corporation in India. It was set up as a commission on August 14, 1956.
Indian Government holds 74.14% equity stake in this Company.
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ONGC Today
ONGC ranks as the Numero Uno Oil & Gas Exploration & Production (E&P)
Company in Asia, as per Platt’s 250 Global Energy Company list for the year 2007. It is
engaged in the upstream sector i.e. in the business of exploration and drilling of crude oil
and natural gas. ONGC is the only Company from India in the Fortune Magazine’s list of
the world’s most admired Companies 2007. ONGC is 9th position in the industry of
mining, crude oil production.
ONGC has 37 projects in 18 different countries (24 Exploration, 6 Development, 7
producing). MRPL its subsidiary has been given the status of Miniratna. With this the
Company is working in the downstream sector of refining of crude oil, selling and
distribution of refined petroleum products and natural gas
It contributes India’s 72% hydrocarbon discovery with a breakage of 77% oil and 62%
gas.
HYDROCARBON DISCOVERY IN INDIA (Till 2007)
ONGC 72%
OIL 11%
Pvt./ JV 17%
HYDROCARBON DISCOVERY IN INDIA
Pvt./ JV
17%
OIL
11%
ONGC
72%
ONGC discovers the major portion i.e. 72% of hydrocarbons in India as is clearly shown
in the above graph.
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OIL DISCOVERY IN INDIA (Till 2007)
The chart and graph below shows the discovery of Oil in India contributed by different
E&P Companies.
ONGC 77%
OIL 12%
Pvt./ JV 11%
OIL DISCOVERY IN INDIA
Pvt./ JV
11%
OIL
12%
ONGC
77%
ONGC discovers major portion of discovery of Oil in India i.e. 77%
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GAS DISCOVERY IN INDIA (Till 2007)
The chart and graph below shows the Gas discovery in India contributed by different
E&P Companies.
ONGC 62%
OIL 9%
Pvt./ JV 29%
GAS DISCOVERY IN INDIA
Pvt./ JV
29%
ONGC
62%
OIL
9%
ONGC also discovers major portion of gas in India i.e. 62%.
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PRODUCTION OF OIL AND NATURAL GAS IN INDIA
In the production sector also ONGC is the number one among the upstream companies as
in the exploration sector.
CRUDE OIL PRODUCTION IN INDIA (‘000’ TONNES) (2006-07)
The chart below shows the production of Crude Oil in India in ‘000’ Tonnes by different
companies and their respective percentages.
ONGC 26051 76.65%

OIL 3107 9.14%
JV/ PRIVATE 4830 14.21%
CRUDE OIL PRODUCTION IN INDIA ('000' TONNES)
JV/ PRIVATE
14%
OIL
9%
ONGC
77%
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NATURAL GAS PRODUCTION IN INDIA (MILLION CUBIC METRES) (2006-
07)
The chart below shows the production of Natural Gas in India in Million cubic metres by
different E&P Companies.
ONGC 22443 70.69%

OIL 2265 7.13%
JV/ PRIVATE 7039 22.17%
NATURAL GAS PRODUCTION IN INDIA(MILLION CUBIC METRES)
JV/ PRIVATE
22%
OIL
7%
ONGC
71%
The above given facts clearly shows that ONGC contributes about 70% in both the
exploration and production sectors of the upstream sector among different E&P
Companies.
During the financial year 2006-07, the Company recorded an operating profit of Rs
21,147 Crores whereas net cash flow from operating activities was Rs 22,910 Crores. As
on March 31, 2007, the Company cash and bank balances amounted to Rs 19,280 Crores.
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ORGANIZATION CHART
CMD
• Company Secretary
MD, ONGC VIDESH Ltd.
• Corporate Affairs
• Chief Vigilance Officer
Director Director Director Director Director Tech & Director

Offshore Onshore Exploration HR Field Services Finance
Mumbai Ahmedabad Western HRD Chief Drilling Internal

High (Offshore) Services Audit
Functional
Ankleshwar HR
Western Chief Well
Heera & (Onshore) Planning Services Commercial
Neelam Mehsena
Assam Employees Chief
relations Logging Performance
Supply Assam Measurement &
Bases Cauvery
Benchmarking
ONGC Explor. &
Karaikal Geophysica Academy Dev. Tech.
Uran (Cauvery) -l Services TREASURY
Plant Security MANAGEMENT
Exploration
Rajamundhry Directorate Legal
Hizaria (KG)
Plant Medical
Tripura
Offshore
PSC-JV
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SWOT ANALYSIS OF THE COMPANY
STRENGHTS
• ONGC ranks as the Numero Uno Oil & Gas E&P Company in Asia.
• ONGC has a very efficient and professional management team.
• ONGC being an international company has sufficient resources and capital to
invest.
• ONGC has ISO-9001 & ISO-14001 registration.
• The investment procedure of ONGC to invest its surplus funds is satisfactory.
WEAKNESS
• ONGC is facing difficulties to produce oil from aging reservoirs.
OPPOURTUNITIES
• Natural Gas: Natural Gas has the potential to be the fuel of the future with demand
outpacing supply by more than two times. Such high scarcity of natural gas
provides big opportunities for Oil companies.
• Out of 26 sedimentary basins in India only 6 are being exploited today, so there is
a large for those willing to assume the risk of exploitation.
• Along with the upstream sector Company is also into the downstream sector with
its subsidiary MRPL, it has a scope to go into the power generation as the major
world’s player are in.
• Automobiles sale have been surging every year. Consumption of petrol, diesel and
LPG are on a steep rise.
• In terms of its investments of short-term surplus, the company has many
untouched avenues from where it can get good returns on its money.
THREATS
• The Mumbai High field remains the biggest producing property in the country, but
it is entering into plateau phase with yields failing.
• In some exploration Campaigns Company involves high technology and high
risks.
COMPETITORS OF ONGC
As ONGC is the Numero Uno Company in the E&P sector in Asia, thus it has no
competitors. There are a few other players in the upstream sector and they are
OIL, JV/ Private players and they include Reliance, Cairn Energy, HOEC, Premier Oil,
GSPC, etc.
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RESEARCH METHODOLOGY
The project is to study the short-term investment policy of ONGC.

I have followed the following approach:
• Study of DPE guidelines:

All the PSEs have to follow the guidelines of DPE to park their idle funds. Hence
these are the basic guidelines, which the company keeps in mind before taking
any investment decisions.
• Study of CRISIL report:

The Company has appointed CRISIL in 2002 to study its investment procedure
and it has devised “Risk based limit structure for banks” for the company.
• Study of Investment Procedure of the Company:

The Company has its own investment procedure to park its idle funds.
• Study of Investment Avenues of ONGC:

Currently, the Company invests in very few avenues. DPE and the Investment
Committee of ONGC restrict the investment avenues of the Company. This
portion deals with the study of those investment avenues of the company.
• Study of Investment Portfolio of the Company:

This portion deals with the current investments of the company, and the analysis
of the returns, which the Company gets from them.
• Study of other investment avenues:

In this part of the study all those investments avenues are studied in which DPE
allows the company to invest. So this portion deals with the study of those
investments avenues, which are untouched by the company till date.
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STUDY OF DEPARTMENT OF PUBLIC SECTOR ENTERPRISES (DPE)

GUIDELINES
DPE has formulated different policies for PUBLIC SECTOR ENTERPRISES (PSEs)
regarding investment of short-term surplus. The guidelines are issued dated 14th
December, 1994 by DPE and are reviewed from time to time dated 1st November, 1995,
11th March, 1996,2nd July, 1996,14th February, 1997, 25th November, 1999, 29th
September, 2005, 31st August, 2007, 4th December, 2007, 11th April, 2008, 15th April,
2008.
PRINCIPLES CONCERNING INVESTMENTS
• The PSEs should observe the following guidelines in regard to investment of

surplus funds.
• Investments should be made only in instruments with maximum safety.
• There should be no element of speculation on the yield obtaining from the
investment.
• There should be a proper commercial appreciation before any investment decision
of surplus funds is taken. The surplus availability may be worked out for a period
of minimum one year at any point of time.
• Funds should not be invested by the PSE at a particular rate of interest for a
particular period of time while the PSE is resorting to borrowing at an equal or
higher rate of interest for its requirements for the same period of time.
• Investment decision should be based on sound commercial judgment. The
availability should be worked out based on cash flow estimates taking into
account working capital requirements, replacement of assets and other foreseeable
demands.
• The remaining period of maturity of any instrument of investment should not
exceed one year from the date of investment where the investment is made in an
instrument already issued. Where investment is made in an instrument newly
issued, the final maturity of the instrument should not exceed one year. However,
only in the case of term deposits with banks, it can be up to three years.
ELEGIBLE INVESTMENTS AVENUES
Investments may be made in one or more of the following instruments, subject to
principles outlined in the previous paragraph:
• Term deposits with any scheduled commercial bank (i.e., banks incorporated in
India) and Rs.100 Crores as ‘net worth’ of the bank, i.e. the paid up capital plus
free reserves of the bank should not be less than Rs.100 Crores, fulfilling the
capital adequacy norms as prescribed by the R.B.I. from time to time. These
adequacy norms should be reflected in the last published balance sheet.
• Instruments which have been rated by an established Credit Rating Agency and
are falling under investment credit rating e.g. Certificates of deposits, Deposits
schemes or similar instruments issued by scheduled commercial banks/term
lending institutions including their subsidiaries, as well as Commercial paper of
corporates.
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• Inter-corporate loans are permissible to be lent only to the Central PSEs, which
have obtained highest credit rating awarded by one of the established Credit
Rating Agencies for borrowings for the corresponding period.
• Any debt instrument, which has obtained highest credit rating from an established
Credit Rating Agency.
• Mutual funds subject to following conditions:
Only Navratna and Miniratna CENTRAL PUBLIC SECTOR ENTERPRISES (CPSEs)
are permitted to invest in SEBI regulated public sector mutual funds.
Investments in schemes of such mutual funds, having equity investments, should not
exceed 30% of the available surplus funds of the concerned CPSE.
The Board of Directors of these CPSEs would decide the guidelines, procedures and
management control systems for investment in such mutual funds in consultation with the
Administrative Ministries. CPSEs are not allowed to invest their surplus funds in the Call
Money Market.
DPE GUIDELINES
S No PERMISSIBLE MAXIMUM RATING OTHER CRITERIA
INSTRUMENTS TENOR/RESIDUAL
MATURITY
1 Fixed Deposits with 3 years N/A Any Scheduled Commercial Bank
banks (Banks incorporated in India)
2. Net Worth of minimum 100
Crores 3.Meets capital
adequacy requirements as
prescribed by RBI
2 Government 3 year Sovereign N/A
Securities and
Treasury Bills
3 Bonds/ Commercial 1 year Investment N/A
Paper issued by Grade
Central PSEs
4 Inter-corporate 1 year Investment N/A
deposits to Central Grade
PSEs
5 Certificates of 1 year Investment N/A
deposits Grade
6 Public Sector N/A N/A Investments in schemes of such
Mutual Funds mutual funds, having equity
investments, should not exceed
30% of the available surplus funds
with the Company
*Under current DPE guidelines direct investment in equity is not permitted.

*PSEs are also not allowed to directly invest in the call money market.
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CRISIL REPORT (24th JULY 2003)
ONGC has mandated CRISIL to provide it with a Risk based limit structure for
investment of its short-term surplus funds.
The main objectives of the report were:
• Develop a risk-based limit structure for exposures to banks/other counter-parties.

• Redesign existing investment processes to implement risk-based limit structure.
• Monitor the key economic and banking related risk indicators and rebalance the
limit structure on a bi-monthly basis.
The purpose of the report was:
• To review existing investment processes.

• To propose risk based limit structure.
• Recommendations to incorporate risk based limit structure in existing investment
procedures.
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REVIEW OF PERMITTED INVESTMENT AVENUES

CURRENTLY PERMITTED* CURRENTLY APPLICABLE* COMPARISION
INVESTMENT AVENUES CONDITIONS WITH DPE
GUIDELINES
Term deposits with scheduled Such banks to be incorporated in Meets DPE Guidelines
commercial banks India with a minimum net worth of requirements
Rs.100 Crores and also meeting the
capital adequacy norms, as
prescribed by the RBI.
Certificates of Deposits, Deposits Instruments rated "AA" or "P-2" Meets DPE Guidelines
Schemes or similar instruments issued equivalent or above. requirements
by scheduled commercial banks, and
subsidiaries of term lending
institutions.
Short-term deposit scheme of Primary Instruments/ schemes to be with Meets DPE Guidelines
Dealers highest credit rating (P1+ or requirements
equivalent). 50% or more of the
equity of such Primary Dealers is
to be held by scheduled
commercial banks/ financial
institutions. The maximum
duration of such deposit shall be 91
days.
Commercial paper issued by Corporate to have highest credit Meets DPE Guidelines
corporates rating (P1+ or equivalent) from an requirements
established credit rating agency. In
case of CP of corporates, other than
central PSEs, the issuer must be a
company whose shares are listed as
"Category A" shares on Bombay
Stock Exchange.
Inter-corporate loans to central Borrower to have highest credit Meets DPE Guidelines
'Navratna' PSEs rating (AAA or equivalent) from an requirements
established rating agency for
borrowing for the corresponding
period.
Bond issued by central PSEs Issuer to have highest credit rating Meets DPE Guidelines
(AAA or equivalent) requirements
Treasury Bills and Governments of Meets DPE Guidelines
India Securities requirements
*Currently refers to the period of
2003
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PROPOSED INSTRUMENTWISE LIMITS

CRISIL has recommended that the instrument wise limits be changed as follows:
• The limits for TDRs/ STDRs of banks have been raised from Rs. 6000 Crores to
Rs. 10000 Crores.
• The limit for investment in T Bills/ GOI securities is raised to Rs. 10000 Crores.
• The limit for Rated Instruments of Banks has been changed to Rs. 1000 Crores
and for Rated Instruments of Term Lending Institutions has been changed to Rs.
1000 Crores as compared to the existing combined limit of Rs. 6000 Crores for
these two categories.
• On the basis of the relatively low liquidity and lack of availability of high
volumes of good credit quality of commercial paper/ bonds of corporates the
investment limit on Commercial Paper/ Bonds of Central PSEs have been reduced
to Rs. 1000 Crores from the current level of Rs. 2000 Crores.
PROPOSED INSTRUMENTWISE LIMIT STRUCTURE

INSTRUMENT EXISTING LIMITS PROPESED
(Rs. CRORES) INVESTMENT LIMITS
(Rs. CRORES)
T Bills/ GOI Securities
6000 10,000
TDRs/ STDRs of Banks 6000 10,000
Rated Instruments of
Banks
1000
Rated Instruments of Term
Lending Institutions
6000 1000
Commercial Paper/ Bonds
of Corporates 2000 1000
Intercorporate loans to
Central PSEs
2000 2000 (No Change)
Deposits with PDs
500 500 (No Change)
PROPOSED RISK BASED LIMIT STRUCTURE FOR BANKS
The risk based limit structure developed by this process is applicable as counter party
limits for banks covering all investments with banks-Term deposits as well as investment
in other rated instruments.
This process has following steps:
• INITIAL SHORTLIST OF BANKS
• RISK GRADING OF BANKS
• CONVERTING RISK GRADES INTO RISK LIMITS
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The initial shortlist of banks is based on certain qualifying criteria. It is operated at two
levels.
LEVEL 1 CRITERIA
TYPE OF BANK NET WORTH CAPITAL ADEQUACY RATIO (CAR)
Public Sector Minimum of Rs. Fulfilling norms as prescribed by RBI (The current
Banks 100 Crores norms of RBI require banks to maintain a minimum
Private Sector Minimum of Rs. Capital to Risk-weighted Assets Ratio of 9% on an
Banks 500 Crores ongoing basis.
CRISIL has justified their recommendation on the ground that the credit-worthiness in the
banking sector has a very linkage to size, and ‘Networth’ is a very good proxy for size.
LEVEL 2 CRITERIA
Only banks in the ‘Risk grades’ A, B and C will qualify for allocation of limits.
MAIN PROCESS I: RISK GRADING OF BANKS
Risk Grades are obtained from a Cramel based model developed by CRISIL. The Cramel
based model uses financial and other business information to assess the creditworthiness
of banks. Banks are graded into four categories- a, b, c, d- in decreasing order of
creditworthiness.
An equity price based dynamic scoring model provides a one-year forward estimate of
default probability measure for each bank. Based on this measure the banks are again
graded into four categories- 1, 2, 3, 4- in the decreasing order of credit quality.
A combined grade is obtained for each bank based on a decision logic that ensures that
the Cramel model retains primacy.
MAIN PROCESS: CONVERTING RISK GRADES TO RISK LIMITS
• Mapping Crisil Default Probability Data to the Risk Grades- A, B, C.

• Conversion of Default Probabilities to Risk Weights.
• Allocation of risk based limits to banks based on risk grades.
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Oil & Natural
RISK Gas Corporation
BASED LIMITSLtd.
CONVERSION OF DEFAULT
PROBABILITIES TO RISK
WEIGHTS
MAPPING CRISIL DEFAULT

PROBABILITIES TO RISK
GRADES- A, B, C
COMBINED RISK GRADES OF

BANKS (A, B, C, D)
CRAMEL BASED RISK EQUITY PRICE BASED

SCORES (a, b, c, d) DYNAMIC SCORING (1, 2, 3, 4)
INITIAL SHORT LIST OF BANKS
RISK BASED LIMT STRUCTURE OF BANKS PROPOSED BY CRISIL
23
SUB PROCESS I: CRAMEL BASED RISK SCORING
CRAMEL BASED MODEL – Parameters for risk scoring:

• Capital Adequacy (sub parameters: Capital Adequacy Ratio, Tier I Capital ratio,
Net Worth/ Net NPA, Advances Growth, Net Worth Size)
• Resources and Liquidity (Sub parameters: Cost of Deposits, Deposit Growth,
Deposit Size)
• Asset Quality (Sub parameters: Average Net NPA, Advances Growth, Advances
Size)
• Earnings (Sub parameters: Return on Assets, Operating Expenses/Total Income,
Profit After Tax Size)
INPUTS
Financial performance and other business factors data of
banks.
CRAMEL BASED CRISIL PROPRIETARY

SCORING TOOL
OUTPUTS
Calculation of Risk Scores and ordering of banks into
grades according to creditworthiness.
CRAMEL BASED RISK SCORES

(a, b, c, d)
24
SCALES USED FOR SCORING

PERFORMANCE SUB VALUE OF SUB SCORE
FACTORS FACTOR
Capital Adequacy Ratio (%) Less than 8% 0
Greater than 15% 10
Between 8% to 15% Proportionately on
a scale of 1- 10
Tier I Capital Ratio (%) Less than 5% 0
Greater than 14% 10
a scale of 1- 10
Net Worth/ Net NPA Less than 0.5 0
Greater than 5.0 10
Between 0.5 to 5.0 Proportionately on
a scale of 1- 10
Cost of Deposits Less than 6% 10
Greater than 10% 0
a scale of 1- 10
Deposit Growth (%) Less than 10% 0
Greater than 35% 10
a scale of 1- 10
Average Net NPA 0% 10
Greater than 14% 0
a scale of 1- 10
Return on Assets Less than 0.0% 0
Greater than 1.5% 10
Between 0.0% to 1.5% Proportionately on
a scale of 1- 10
Operating Expenses/ Total Less than18% 10
Income Greater than 33% 0
a scale of 1- 10
25
SUB PROCESS II: EQUITY PRICE BASED DYANMIC SCORING
The equity price based dynamic scoring model provides a one-year forward estimate of
default probability for each bank. This process determines the default risk associated with
any entity on a dynamic basis by linking it to its stock price data. The rationale behind
use of such a methodology is that the markets reflect the consensus opinion of
participants and is therefore a very good source of current information of the
creditworthiness of an entity. The process involves the following broad steps:
• Estimation of the banks’ implicit assets and business risk – proxied by asset
volatility from market prices and non-equity liabilities.
• Combination of business risk, assets value and “minimum payable’ liabilities into
a single risk measure for each bank.
• Benchmarking this measure against historical default experience of rated
companies to arrive at a probability of default for each bank into four grades as 1,
2, 3, and 4 in decreasing order of credit quality.
INPUTS
Financial parameters and equity prices/volatility data,
market interest rates
EQUITY PRICE BASED CRISIL PROPRIETARY

DYNAMIC SCORING TOOL
OUTPUTS
Calculation of default probabilities and ordering of banks
into four grades according to default probabilities/ risk score
EQUITY PRICE BASED DYNAMIC SCORE

(1, 2, 3, 4)
26
SUB PROCESS III: COMBINING CRAMEL BASED SCORE AND EQUITY
PRICE BASED SCORE TO GRADE BANKS
A combined grade is obtained for each bank based on a logic which ensures that the
CRAMEL model retains primacy –the combined grade cannot be better than the
CRAMEL based grade but it can be lower than the CRAMEL based grade.
The grades of Cramel based scoring are a, b, c, d (descending credit quality) and the
grades of equity prices based model are 1, 2, 3, 4 (descending credit quality) and the
grades of the combined grading are A, B, C, D (descending credit quality). The decision
logic is as follows:
A – a1, a2
B – a3, a4, b1, b2, b3
C – b4, c1, c2, c3
D – c4, d1, d2, d3, d4
INPUTS
Cramel based risk scores. Equity price based dynamic risk
score. Asset –Liability Profile of banks.
DECISION LOGIC TO COMBINE SCORES
OUTPUTS
Gradation of banks into four-risk grades-
(A, B, C, D)
27
MAIN PROCESS II: TRANSFORMING RISK GRADES TO RISK LIMITS
SUB PROCESS I: MAPPING CRISIL DEFAULT PROBABILITY DATA TO THE
RSK GRADES – A, B, C.
CRISIL has a proprietary database of default probabilities of different credit categories.

This is derived from the history of rating movements over 11 years.
The mapping of CRISIL Default probability data to Risk Grades is done as follows:
• Risk Grades are mapped to appropriate groups of company ratings in the Crisil
Database using percentile matching.
• Default probability of each group of company ratings is extracted from the Crisil
Database.
• These default probabilities are assumed to be the default probabilities for the
corresponding risk grades.
INPUTS
Risk Grades of the banks, i.e., output of Main Process I
CRISIL DEFAULT PROBABILITY DATABASE
OUTPUTS
Default probability for each risk grade
28
SUB PROCESS II: CONVERSION OF DEFAULT PROBABILITES TO RISK
WEIGHTS
On the basis of pooled survey and model-based evidence, Basel Committee has devised a
functional relationship between the Default Probability (DP) and the risk weights. The
relationship is:
Risk Weight = 976.5*N (1.118*G (DP)+1.288)*[1+0.0470*(1-DP)/DP0.44]
Where N is the cumulative Normal Distribution and G is the inverse of cumulative

Normal Distribution.
This relationship is used to convert the default probabilities associated with Risk Grades
A, B, C, into risk weights.
The relative limit allocations in the Risk Grades A, B, C is approximately 70:20:10 on the
basis these risk weights.
GRADES No OF PROBABILITY RISK ALLOCATION ALLOCATION

BANKS IN OF DEFAULT WEIGHTS RATIO PROPORTION
CATEGORY (CRISIL (BASLE
DATEBASE) FORMULA)
A 13 0.00315 60.10291 11.63065 0.701028
B 9 0.02305 209.8547 3.331048 0.200776
C 8 0.0799 429.0785 1.629157 0.098196
INPUTS
Default Probability for each risk grade – A, B, C
FORMULA DEVELOPED BY BASLE

COMMITTEE ON BANKING SUPERVISION
OUTPUTS
Risk Weight for each risk grade – A, B, C.
29
SUB PROCESS III: CALCULATING RISK BASED LIMITS
The following limit allocation rules are used to operationalise a risk based limit structure
for banks.
LIMIT ALLOCATION RULES
• ONGC will estimate the Maximum Investible Surplus (MIS) bimonthly. Crisil
will use this figure as the base for the base for development of limit structure.
• Overall Limit amount allocated to banks would be 1.5 times the MIS
• Overall limit amount is allocated to each risk grade in the inverse proportion of
their risk weights. This proportion is 70:20:10.
• Limits are allocated to banks with Risk Grade of A, B, C .
• For Grade A, bank wise limits are capped at a prudential limit of 12.5% of overall
limit. Similarly the caps would be 3.5714% of overall total limit for Grade B and
1.7857% of overall limit for Grade C. State bank of India would be an exception
to this rule and would have the higher of the following as its upper cap: Rs. 1000
Crores OR 12.5% of overall limit.
• Limits are allocated to each bank within a risk grade in proportion of its adjusted
Net Worth. For Public Sector Banks the adjusted Net Worth is the same as the Net
Worth. For private sector banks the adjusted Net Worth is 0.06 times their net
Worth. Additionally, the limits of small private sector banks (Less than Net Worth
of Rs. 2000 Crores) would be capped at 5% of their Net Worth.
• In case allocation of the full amount (worked out in the ratio of 70:20:10) is not
possible in Category B or Category C on account of hitting of prudential limits for
individual for individual banks or the 5% of net worth cap for small private banks,
such unallocated amount will be shifted to Category A.
• To ensure that banks in the lower credit quality grades do not have a higher
“Limit/ Net Worth percentage” than the banks in higher grades the following
iterative process is followed:
o The Limit/ Adjusted Net Worth percentage for any bank in Category B
would be capped at the “Highest Limit/ Adjusted Net Worth Percentage”
for Category A. The “Highest Limit/ Adjusted Net Worth Percentage” for
Category A is the highest Limit/ Adjusted Net Worth percentage of all the
banks in Category A except the ones that are capped by the 12.5%
prudential limit or the 5% of net worth cap on small private banks. Any
unallocated amount in Category B would be shifted to Category A.
o The Limit/ Adjusted Net Worth percentage for any bank in Category C
would be capped at the “Highest Limit/ Adjusted Net Worth Percentage”
for Category B. The “Highest Limit/ Adjusted Net Worth Percentage” for
Category B is the highest Limit/ Adjusted Net Worth percentage of all the
banks in Category B except the ones that are capped by the 3.5714%
prudential limit or the 5% of net worth cap on small private banks. Any
unallocated amount in Category C would be shifted to Category A.
o Limits to banks in Category A would be recalculated after addition of the
amounts shifted from Category B and Category C.
30
• If actual invested amounts in Grade B and Grade C together is 30% or more of the
actual total investments no fresh bids may be invited from the banks in Grade B
and Grade C.
These limits were calculated on publicly available audited financial results for the year
ending March 2003.
INPUTS
• Risk Weights for each risk grade
• Adjusted net worth of all banks
• Portfolio size
ALLOCATION RULES TO CONVERT

INPUTS TO LIMITS
OUTPUTS
Risk based limit for each bank.
31
PROCEDURE FOR INVESTMENTS OF SURPLUS FUNDS
• Investment of surplus funds involves the following activities:

• Preparation of Cash Forecast and determining Investible surplus, if any.
• Inviting quotations from eligible parties, as may be approved by the competent
authorities from time to time.
• Investments decisions after necessary deliberations and recommendations by
ONGC Board and approval by a designated Committee of Directors comprising of
C&MD & Director (Finance) and Director (HR), to whom powers of investment
of surplus funds up to specified limit have been delegated by the Board.
• Deployments of funds with successful bidders in line with investment decisions.
• Settlement activities at the time of investments as well as at the time of maturity.
• Generating relevant MIS based on financial results of the empanelled entities/
market intelligence reports or other sources and providing the same to the higher
management. In particular, reporting of the investment transactions to the Board
as required by DPE Guidelines and seeking Board approval/ ratification, wherever
required.
INVESTMENT PROCEDURE
OBJECTIVE
1. The objective of the cash management activity is to ensure availability of required
funds in proper time to ensure smooth conduct of the business of the Company
and to deploy the surplus funds of the Company from time to time to avoid idling
and generate returns.
CASH FORCASTING
(Responsibility)
2. The Fund Section of the Corporate Accounts Department, Dehradun, has the
responsibility of cash forecasting activity.
Nature & Periodicity of Cash Forecast
3. The Funds Section will prepare cash-forecast for the next one year with monthly
break-up on roll-over basis and weekly break-ups for the first two months, as also
break-ups in between wherever major cash flows such as offshore royalty,
advance tax, dividend payment etc are involved. The Cash Forecast will be
accompanied by and advice to call quotations, along with indicative amount/
range of funds for which quotations are to be invited. The Cash Forecast will
detail the assumptions made for the preparation of forecast, the variation vis-à-vis
the previous forecast and the reasons thereof, to the extent practicable. The Cash
Forecast will be sent to Treasury Management Group, New Delhi (TMG) every
week on a fixed day (such as, every Wednesday) to be decided by Funds Section
with the approval of Head of Corporate Accounts to have regularity and better
32
control over the forecasting system. In addition, Cash Forecast will also be sent on
request from TMG/ Investment Committee.
Communication of Cash Forecast to TMG
4. The Cash Forecast will be sent by fax/ e-mail to TMG with a post copy by Dak
Box/ Courier.
PROCESS OF INVITATION OF OFFERS UPTO APPROVAL OF INVESTMENT

PROPOSAL AND ISSUE OF INVESTMENT AUTHORITY NOTE
(Responsibility)
5. TMG will have the responsibility to coordinate the process of invitation of offers,
preparation of comparative statement, providing required assistance to the
Investment Committee, and issue of investment authority to the Accounts
Department for effecting the investment transactions.
Invitation of Bids
6. The Treasury Management (TMG) on the basis of the Cash Forecast and
considering actual/ anticipated changes, if any, in the fund position, will invite
quotations, with the approval of an Investment Committee member, from the
eligible parties, as per the approved list of invitees, from time to time. Offers are
to be invited for investment in avenues by the Board. Bids may be invited from
the eligible bidders for a minimum amount of Rs. 5.00 Crores.
7. The invitation letter inter-alia, will specify the indicative investment amount,
indicative dates of investment, indicative tenure and the last date/time for the
submission of bids. Such amounts and tenures will be subject to change depending
upon availability of funds, yields for various maturities, etc and approval of the
competent authority for investment decision.
8. Bids will be invited from eligible parties. Invitations should be sent through fax/
e-mail/ website and quotations be invited in sealed cover/ e-mail from the eligible
parties. In case, it is not feasible to send the invitation by fax/ e-mail due to non-
availability of fax/ e-mail facility at bidders end or for any other reason, invitation
may be sent by ordinary post or handed over to authorized representative of the
bidders to the extent practicable.
9. The invitation of bids will not in any way bind ONGC for placement of fund with
any of the bidders. ONGC will reserve the right to reject any bid without any
further reference to the bidders.
10. The bids should be invited directly from the bidders and no broker should be
involved in the transaction between the bidder and ONGC.
Submission of Bids
11. The bidders will be requested to submit their bids within the date and time
specified in the invitation letter. Bids should be submitted in a bid box (Treasury
Bid Box) to be kept at a location (to be specified in the invitation letter) in office
of the ONGC at New Delhi. The bidders may, if they so like, submit their bids by
33
courier or registered post provided that the bids must reach the addressee specified
in the invitation letter within the stipulated date and time. Under such
circumstances, offers received by any other mode such as fax within the date and
time will also be taken into consideration. However, ONGC will not be
responsible for any loss or delay of bids in transit.
12. Late offers are not to be considered.
13. The Bids should be firm and unconditional and give the information requested in
the invitation letter in the manner requested. Investment Committee will have full
powers to reject any incomplete bid.
14. If any bidder after submission of bids, withdraws/ amends any term or condition
and/ or expresses inability in acceptance of any term/ rate quoted, such bidder,
with the approval of D (F) and C&MD, may not be considered for future
invitation of bids. Upon request of the bidder or otherwise under a general review,
invitation to such bidder may be re-initiated with the approval of D (F) and
C&MD.
Opening of Bids and Comparative Statements
15. The bids will be opened by (a) at least two members of the Investment
Committee, or (b) at least one member of the Investment Committee and an
official of the TMG.
16. Bidders will be invited to depute, if they so wish, their authorized representative
to be present at bid opening.
17. A bid opening register, showing the details of bids received and duly signed by
the bidders’ representatives, if any, present at the time of bid opening, has to be
maintained by the TMG.
18. The Comparative Statement will be prepared and signed by two officers of TMG
and the same along with the offers will be put up to the Investment Committee for
its deliberation and recommendations.
Investment Committee Proceedings
19. The Investment Committee will comprise of such officials and shall have such
quorum as may be decided by the Board from time to time.
20. The deliberations and recommendations of the Investment Committee shall be
recorded and signed by the participating members. Where any particular member
of the Investment Committee is unable to be physically present at the location
where the Investment Committee is deliberating, he may, with consent/ request of
other participating members, participate in the deliberations by telephone or other
communication modes and sigh the Investment Committee minutes on fax.
Guiding Principles for Investment Committee
21. The following guiding principles are to be kept in view by the investment
Committee:
34
• Investment Committee will evaluate the offers on commercial principles.
• The investments shall strictly be made on the basis of tenders submitted by
the bidders and further negotiations or matching be held. Any changes in
bid after tender closing will not be considered. However, if better rates are
offered by the bidder(s) who is (are) in reckoning otherwise, the same
maybe considered.
• Investments are to be made in accordance with the various exposure limits
as may be approved by the Board from time to time.
• Investment Committee will recommend investment up to maximum one
year (including one year and one/ two days). Investment transactions for
more than one year would be put up to Broad for ratification.
• Where the funds are available for a longer period but with temporary
decline in availability during the fund availability period, Investment
Committee may recommend investment of funds for the longer period by
availing cash credit facility for such temporary deficit period where such
temporary deficit will lead to investment at higher yield and is considered
commercially beneficial. However, such recommendations will normally
consider maintaining at all times a cushion of Rs 100 crores in cash credit
limit for any day-to-day variations or unforeseen requirement of funds.
Working Capital Demand Loan (WCDL) limit is not to be exposed for
investments and should be kept fully available over and above the cushion
in CC limit for any contingencies.
• In case of a tie in rates, the Investible amount may be distributed broadly
in proportion to the net worth of the respective bidders, subject to their
exposure limits and minimum/ maximum amount acceptable to them. If
such distributed amount falls below the minimum amount acceptable to
any bidder or less than Rs. 5.00 crores, then no amount may be placed with
the said bidder.
• Investment Committee shall ensure that its recommendations are in
accordance with the DPE Guidelines on the subject.
Approval of Director (HR) and Director (Finance) & C&MD
22. The recommendations of the Investment Committee shall be put up to Director

(HR) and Director (Finance) & C&MD on immediate priority to avoid any delay
in investment action.
Issue of Investment Authority Note
23. TMG will issue a request note (the Investment Authority Note) to the head of the
F&A section of New Delhi office for making the investments in accordance with
the approval granted by Director (HR) and Director (Finance) & C&MD. Where
any investment is to be made at Dehradun, the Investment Authority Note would
be invariably sent to Head of Corporate Accounts, Dehradun, for information/
accounting purposes.
35
24. The Investment Authority Note will specify, inter alia, the amount of investment,
name and address of the borrower, particulars of instrument, rate of return, date of
investment, date of maturity and maturity amount.
25. The Investment Authority Note will be signed by (a) any two officers of the TMG
or (b) any one officer of TMG and any Investment Committee member.
26. The Funds section would intimate fund availability and provide drawing power
for investment.
27. The Head of Finance, Delhi office/ Head of Fund section, Dehradun, as the case
may be, will invest the surplus funds in accordance with the Investment Authority
Note issued by TMG.
SETTLEMENT, ACCOUNTING & RECONCILATION

Settlement Function
28. All settlement related activities, like, issuing of cheques, drawing power for
clearing of cheques, custodianship of deposits, maturity advise to the parties,
collecting maturity proceeds, releasing the deposit receipts at the time of maturity,
informing Corporate Accounts Deptt. About investment/ maturity would be
managed by the Head of Finance, Delhi Office/ Head of Fund Section, Dehradun,
as the case may be.
Documents
29. In case of all investments, proper documentary evidence such TDR receipt should
be obtained expeditiously and in a reasonable time. If instruments are not received
within one week from the date of investment, Head of Finance, Delhi Office/
Head of Fund Section, Dehradun, as the case may be, should follow up the matter
with the concerned bank/ institution. After a period of two weeks, the matter
should be formally informed to TMG.
30. Photocopy of all investment instruments are to be retained by the Head of
Finance, Delhi Office/ Head of Fund Section, Dehradun, as the case may be.
31. A register containing details of investment & maturity should be maintained by
Head of Finance, Delhi Office/ Head of Fund Section, Dehradun, as the case may
be. A column, showing the date of receipt of instrument, may be maintained in the
register.
32. There should be a system of monthly reconciliation of records maintained by
Head of Finance, Delhi Office/ Head of Fund Section, Dehradun and TMG,
wherein all information and calculations are crosschecked to ensure correctness of
the available data/ details. In case of shorter duration investments, the above
reconciliation must be done before the date of maturity of such investments.
Discrepancies
33. Within two working days of receipts of the instrument, Finance, Delhi Office/
Fund Section, Dehradun, as the case may be, should check up the interest and
maturity value. In case of any discrepancy in the maturity amount intimated in the
Investment Authority Note and the maturity amount mentioned in the instrument,
36
the matter should be taken up with the concerned bank/ institution by the Head of
Finance, Delhi Office/ Head of Fund Section, Dehradun, as the case may be, in
consultation with TMG.
MIS & REPORTING TO BOARD
34. A copy of every Investment Authority Note would be invariably sent to Head of
Corporate Accounts, Dehradun, for information and accounting purposes.
35. TMG would inform, on monthly basis, the monthly investment details to the
Funds Section and Corporate Budget Section regularly.
36. TMG would also regularly put up note giving details of investments for the
information/ ratification of the Board.
AUDIT
37. The investment transactions would be periodically reviewed by Internal Audit, to

ensure compliance with Board approved policy and procedures. The audit would
inter alia carry out securities reconciliation that is reconciliation of investment
documents such as TDR receipts with investment registers and accounting
records.
38. TMG would maintain the records of Investment Committee deliberations/
approvals and make the same available for audit (internal as well as statutory/
Government) as and when required.
MISCELLANEOUS
39. TMG will periodically update the panel of invitees and their financial details,
audited balance sheets, exposure limits etc.
40. It is the intention to use information technology measures such as web-based
bidding to increase efficiency of bidding process and reduce cycle time.
Procedures for such web-based bidding may be evolved with approval Director
(HR) and Director (Finance) &C&MD.
41. This procedure applies to all the investments to be made through Investment
Committee and with the approval of Director (HR) and Director (Finance) &
C&MD under delegated powers in accordance with the decisions taken by the
Board from time to time.
42. Director (HR) and Director (Finance) & C&MD are authorized to alter the
constitution of Investment Committee whenever needed provided that any such
alteration shall be reported to the Board as soon as practicable, preferably at its
next meeting.
Fund Section Committee of Directors (Director (Finance) & C&MD

TREASURY
(Corporate Accounts 37
MANAGEMENT
Department) GROUP Authorized Banks
Dehradun e-Bidding Software
Investment Committee
7. Approval for Investment decision
6. Present Comparative Statement 8. Recommend

to facilitate final decision on final decision
placement on placement
9. Place funds
with successful
bidder
1.Prepare Cash
Forecasts
2. Estimate investible Surplus,
Invites bids from eligible banks/ PSUs to place
fixed deposits
4. Place bids
specifying rate,
5.Obtain
Comparative
10.Update FD statements
placement details
SAP
3. Update bid details
On the system
INVESTMENT PROCEDURE
38
PERMITTED INVESTMENT AVENUES
Investment in following avenues are permitted by the Board of Directors of ONGC:

• Term Deposits with scheduled commercial banks (incorporated in India):
o Public sector banks with a minimum net worth of Rs. 100 Crores and also
meeting the capital adequacy norms, as prescribes by the RBI.
o Private sector banks, with a minimum net worth of Rs.500 Crores and also
meeting the capital adequacy norms prescribed by RBI from time to time.
These adequacy norms should be reflected in the last published balance sheet of the
bank. List of empanelled banks and the bank-wise exposure limit shall require
approval of the Board.
• Instruments rated “AA” or “P-2” or equivalent e.g., Certificates of Deposits,
Deposit Schemes or similar instruments issued by scheduled commercial banks.
• Commercial paper issued by corporates having highest credit rating (P1+ or
equivalent) from an established credit rating agency. In case of CP of corporates,
other than central PSEs, the issuer must be a company whose shares are listed as
“Category A” shares on Bombay Stock Exchange.
• Inter-corporate loans to central ‘Navaratna’ PSEs having highest credit rating
(AAA or equivalent) from an established rating agency for borrowing for the
corresponding period.
• Bonds issued by central PSEs having highest credit rating (AAA or equivalent).
o Treasury Bills and Governments of India Securities.
o Liquid TDR, automatic and value-dated, with SBI, Tel Bhavan for the
minimum period.
The maximum investment duration shall be one year (including one year and one/ two
days). Also, if the maturity date happens to be a holiday, then investment/ maturity shall
be for tenure up to the next working day, as per the banking practice.
39
ONGC INVESTMENT POLICY - INVESTMENT AVENUES

S No PERMISSIBLE MAXIMUM RATING OTHER CRITERIA
INSTRUMENTS TENOR/
RESIDUAL
MATURITY
1 Fixed Deposit with 1 year N/A 1. Any scheduled commercial
Public Sector bank (Banks incorporated in
banks India)
2. Net worth of minimum 100
Crores
3. Meets capital adequacy
requirements as prescribed by
RBI
2 Fixed Deposit with 1 year N/A 1. Any scheduled commercial
Private Sector bank (Banks incorporated in
banks India)
2. Net worth of minimum 500
Crores
3. Meets capital adequacy
requirements as prescribed by
RBI
3 Certificate of 1 year AA/ P-2 Or N/A
deposits of equivalent
scheduled
commercial banks
4 Commercial Paper 1 year P1+ Or N/A
equivalent
5 Inter-corporate 1 year AAA Or Only to Central Navratna PSEs
deposits (ICD) to equivalent
Central PSEs
6 Bonds issues by 1 year AAA Or N/A
Central PSEs equivalent
7 Liquid TDRs with Minimum N/A N/A

SBI ONGC Main tenor
Banker
8 Government 3 years Sovereign N/A
Securities and
Treasury Bills
9 UTI Liquid Plan 6 days N/A N/A
40
INVESTMENT POLICY-EXPOSURE LIMITS
• For Commercial Banks (investment in TDRs and STDRs):

As per bank-wise exposure limit approved by the Board.
• For Commercial paper of corporates/ Bonds of central PSEs
o Central PSEs: 25% of its Networth, subject to a cap of Rs.250 Crores.
o Other Corporates: 25% of its Networth, subject to a cap of Rs 25 Crores.
• For Inter-corporate loans to central Navaratna PSEs: 25% of Networth, subject to
a cap of
• Rs. 1000 Crores for Oil Sector PSEs and
• Rs. 500 Crores for non-oil Sector PSEs
• For T-Bills/ G-Securities: No credit exposure limits, in view of sovereign
exposure. The Networth of PSEs/ other corporates shall be taken as per the latest
available audited accounts (previous year’s published audited accounts) of the
respective parties.
The above limits are further subject to following instrument-wise limits:

• T-Bills/ GOI Securities: Rs 10,000 Crores
• TDRs/ STDRs of banks: Rs. 25,000 Crores
• Certificates of deposits and other rated instruments of banks/ FIs: Rs.1, 000
Crores
• Commercial Paper/ Bonds of corporates: Rs. 1,000 Crores
• Inter-corporate loans to central PSEs: Rs 2,000 Crores.
• UTI Liquid Fund: Rs 1,000 Crores.
INVESTMENT POLICY-EXPOSURE LIMITS

S No PERMISSIBLE INSTRUMENTS EXPOSURE LIMITS
1 Fixed Deposits with scheduled As per bank-wise exposure limit
commercial banks approved by the board
2 UTI Liquid Fund Up to 6 days subject to a maximum
limit of 1000 Crores
3 CP/ Bonds of Corporates 1.Central PSEs: 25% of its
Networth, subject to a cap of Rs.
250 Crores. 2.Other
Corporates: 25% of its Networth,
subject to a cap of Rs. 25 Crores
4 Inter-corporate deposits 25% of Networth, subject to a cap of
1. Rs. 1000 Crores for Oil Sector
PSEs, and 2.
Rs. 500 Crores for Non-Oil Sector
PSEs
5 Treasury Bills and Government No Credit Exposure Limit
Securities
41
ANALYSIS OF INVESTMENT INSTRUMENTS
The Company’s investments are mainly short term in nature. Protection of capital is the
key driver for investment decisions. Accordingly eligible instruments have been selected
based on the following criteria with the first criteria being accorded the highest priority,
the second criteria being accorded the second highest priority and so on:
• CRITERIA 1: Protection of capital locked in investment avenues.

• CRITERIA 2: Ensuring that adequate liquidity is maintained to meet forecasted
day- to-day operations as well as meet unforeseen fund requirement at short
notice.
• CRITERIA 3: Optimizing return on investible surplus within the overall risk
appetite of the company and limits set for individual instruments, counter parties
and asset classes.
Accordingly each permissible asset class as per DPE guidelines has been evaluated based
on aforesaid criteria. The permissible asset classes considered for the purpose of setting
limits are as follows:
• Fixed Deposits with scheduled commercial banks

• UTI Liquid Fund
• Certificates of Deposits and other rated instruments of Banks/ FIs
• CP/ Bonds of Corporates
• Inter-corporate deposits
• Treasury Bills and Government Securities
ONGC INVESTMENT POLICY- INSTRUMENT WISE LIMITS

S No PERMISSIBLE INSTRUMENT OUTSTANDING
INSTRUMENTS LIMIT (INR INVESTMENT AS ON JAN
CRORES) 31,2008 (INR CRORES)
1 Fixed Deposits with
scheduled commercial banks 25,000 15,710
2 UTI Liquid Fund 1,000 NIL
3 Certificates of Deposits and
other rated instruments of
Banks/ FIs 1,000 NIL
4 CP/ Bonds of corporates 1,000 NIL
5 Inter-corporate deposits 2,000 NIL
6 Treasury Bills and
Government Securities 10,000 NIL
42
CURRENT INSTRUMENTS:
The Company has its own Investment Committee that finally takes the decision of
parking the idle funds with different instruments, keeping in mind the DPE Guidelines.
At present the company invests only in three instruments. They are as follows:
• Fixed Deposits with scheduled commercial banks

• Inter-corporate deposits
• UTI Liquid Fund (if the surplus cash is there for less than 7 days)
FIXED DEPOSITS WITH SCHEDULED COMMERCIAL BANKS
A deposit held at a financial institution that has a fixed term. These are generally short-
term with maturities ranging anywhere from a month to a few years. When a fixed
deposit is purchased the lender (the customer) understands that the money can only be
withdrawn after the term has ended or by giving a pre-determined number of days notice.
Fixed deposits also give a higher rate of interest than savings banks account. The facilities
vary from bank to bank.
FEATURES:
SAFE:
Bank deposits are fairly safe because banks are subject to control of RBI (Reserve Bank
of India).
As the Company’s main Criteria of investments are protection of capital, thus this is the
safest avenue for the company to park its idle funds. So, to reduce its risk the Company
has locked 97% of its investments into fixed deposits.
VARYING INTEREST RATES:
The banks are free to offer varying interests in fixed deposits of different maturities.
Interest is compounded once a quarter, leading to somewhat higher effective rates. The
rate of interest of bank fixed deposits varies between 4 to 11% depending on the maturity
period (duration) of FD and the amount invested. Interest rate also varies with each bank.
A bank FD does not provide a regular interest income, but a lump-sum amount on its
maturity.
That’s why the Company has adopted a policy of inviting bids for investment in fixed
deposits, and invests with the bank offering the highest interest rates. For the quarter-
ended September 30, 2007, the weighted average annualized pre-tax yield on bank
deposits was 9.96%p.a.
DEPOSIT AMOUNT:
The minimum deposit amount varies with each bank. It can range from as low as Rs. 100
to an unlimited amount with some banks. Deposits can be made in multiples of Rs. 100.
43
The Company has its own list of empanelled banks, as approved by the Board for
investments of surplus funds, and their exposure limits are also set depending upon the
“Risk based limit structure” given by CRISIL.
TENOR:
The term of fixed deposits vary from one month to few years. Depending upon which the
interest rates also vary.
ONGC can place its funds only for a tenor of 1year.
ADVANTAGES:
Bank Deposits are the safest after the post office deposits.
It is possible to get loans up to 75-90% of the deposit amount from banks against the
fixed deposit.
44
PRESENT SCENARIO:
ANALYSIS OF INVESTED AMOUNT IN FDs
The company has locked 97% of its funds in the fixed deposits with different banks.
Following is the amount invested by the Company in the fixed deposits.
DATES June September December March June September December

(QUARTER 30,2006 30,2006 31.2006 31,2007 30,2007 30,2007 31,2007
ENDED)
FDs (INR 7,452 11,053 11,057 13,643 15,413 15,758 15,410
CRORES)
The data is from June 30,2006 to December 31,2007. The Company’s investments in the
same have grown by 107% over the past six quarters. This clearly shows that Company
parks most of its funds in FDs.
INVESTM ENTS IN FDs
18,000
16,000
14,000
12,000
10,000
AMOUNT INVESTED
8,000
6,000
4,000
2,000
0
Septemb Decemb Septemb Decemb
June March June
er er er er
30,2006 31,2007 30,2007
30,2006 31.2006 30,2007 31,2007
FDs (INR Crores) 7,452 11,053 11,057 13,643 15,413 15,758 15,410
DATES (QUARTER ENDED)
45
ANALYSIS OF RETURNS IN FDs
Returns varies from the amount invested and the rates offered at the time if bidding for
the investments from different banks.
Following are the rate of returns obtained for the six quarters:
QUARTERS Q2 FY Q3 FY Q4 FY Q1 FY Q2 FY Q3 FY
2006-07 2006-07 2006-07 2007-08 2007-08 2007-08
RATE 8.11% 8.14% 8.71% 9.60% 9.96% 9.84%
(%p.a)
The data is for the past six quarters. The rate of returns has shown a consistent increase. It
has increased from 8.11% to 9.96% in one year.
RETURNS ON FDs
12.00%
10.00%
8.00%
RATE (%p.a) 6.00%
4.00%
2.00%
0.00%
Q2 FY 2006- Q3 FY 2006- Q4 FY 2006- Q1 FY 2007- Q2 FY 2007- Q3 FY 2007-
07 07 07 08 08 08
RATE (%p.a) 8.11% 8.14% 8.71% 9.60% 9.96% 9.84%

QUARTERS
46
INTER-CORPORATE DEPOSITS (ICDs)
The Inter-corporate deposits are referred to as the deposits made by one company with
another company. The Inter-corporate deposits are usually made of six months. The three
types of ICDs are three months deposits, six months deposits, call deposits.
THREE MONTHS DEPOSITS:
The three months deposits are the most popular among the three types of the deposits.
These deposits are generally considered by the borrowers in order to solve the short-term
capital inadequacy problems. This type of short-term cash problem may develop due to
various reasons such as- tax payment, excessive raw material imports, break in the
production, payments of dividends, delay in collection, and excessive expenditure of
capital. The rate of interest given for three months deposits is 12% per year.
SIX MONTHS DEPOSITS:
The six months deposits are made for first class borrowers and the term period for such
deposits is six months. The interest rate defined for this type of deposit is 15%.
CALL DEPOSITS:
The concept of call deposits is different from the previous two deposits. On giving the
notice of one day, this deposit can be withdrawn from the lender. Interest rates on call
deposits are around 10%.
FEATURES:
The inter-corporate market shows a number of interesting features. The biggest advantage
of investing in ICDs that the transaction is free from bureaucratic and legal hassles. The
business world otherwise is regulated by a number of rules and regulations. The existence
of ICDs market shows that the business world can be regulated without rules. The market
of ICDs maintains secrecy. The brokers in this market never reveal their lenders and
borrowers, as they believe if proper secrecy is not maintained then the rate of interest can
fall abruptly. The market of ICDs crucially depends on the personal contacts. The biggest
risk investing in ICDs is that it is an unsecured investment avenue. And the market for
ICDs is not very liquid. And thus, ONGC invests very less percentage of its funds in this
instrument.
PRESENT SCENARIO:
The Company invests mostly in FDs and very few of its funds in ICDs.
As per DPE guidelines, ONGC is permitted to make ICDs only with central PSEs having
highest investment rating. However as per the present investment policy ONGC is
allowed to make ICDs only with the following six central Navratna PSUs: IOC, HPCL,
BPCL, NTPC, SAIL, and BHEL.
47
ANALYSIS OF INVESTMENTS IN FDs AND ICDs (PORTFOLIO
COMPOSITION):
As most of the chunk of surplus funds of ONGC goes in to the FDs and a very small
amounts goes in to the ICDs. Its portfolio of investment has a major contribution by the
investments in FDs. The portfolio composition of ONGC till December 30,2007 is as
follows:
DATES June September December March June September December

(QUARTER 30,2006 30,2006 31.2006 31,2007 30,2007 30,2007 31,2007
ENDED)
FDs (INR 7,452 11,053 11,057 13,643 15,413 15,758 15,410
CRORES)
ICDs (INR 400 500 500

CRORES)
The Company does not invest regularly in ICDs as it is shown by the portfolio
composition.
PORTFOLIO COPOSITION
18,000
16,000
14,000
12,000
10,000
AMOUNT (INR
CRORES)
8,000
6,000
4,000
2,000
0
Septemb Septemb
June Decembe March June Decembe
er er
30,2006 r 31.2006 31,2007 30,2007 r 31,2007
30,2006 30,2007
ICDs (INR CRORES) 400 500 500

FDs (INR CRORES) 7,452 11,053 11,057 13,643 15,413 15,758 15,410
DATES (QUARTER ENDED)
48
ANALYSIS OF RETURNS FROM FDs AND ICDs:
As the Company does not invest in the ICDs regularly thus the returns earned on them are
well understood by comparing them with the returns earned on FDs. The returns earned
from both of these are following:
QUARTERS Q2 FY Q3 FY Q4 FY Q1 FY Q2 FY Q3 FY
2006-07 2006-07 2006-07 2007-08 2007-08 2007-08
RATE FDs 8.11% 8.14% 8.71% 9.60% 9.96% 9.84%
(%p.a)
RATE ICDs 7.43% 7.43% 10.77% 10.77% 10.77%
(%p.a)
Inter-corporate deposits is a riskier investment, the returns on ICDs is lower or similar to

return on the FDs in the relevant period. The study of past investments of the company
shows that it has invested its funds with IOC and HPCL only.
ANALYSIS OF RETURNS (FDs VERSES ICDs)
12.00%
10.00%
8.00%
RATE (%p.a) 6.00%
4.00%
2.00%
0.00%
Q2 FY 2006- Q3 FY 2006- Q4 FY 2006- Q1 FY 2007- Q2 FY 2007- Q3 FY 2007-
07 07 07 08 08 08
RATE FDs (%p.a) 8.11% 8.14% 8.71% 9.60% 9.96% 9.84%

RATE ICDs (%p.a) 7.43% 7.43% 10.77% 10.77% 10.77%
QUARTERS
49
INVESTMENTS IN MUTUAL FUNDS SCHEMES
A Mutual Fund is a trust registered with Securities and Exchange Board of India (SEBI).
The fund pools the saving of several individuals and corporate investors who share a
common financial goal- to make more money.
The money that people invest is then invested in capital market instruments and securities
like shares, debentures, bonds and government securities.
Each mutual fund is managed by an asset management company (AMC). The AMC
invests on behalf of the unit holders of the fund in accordance with the objective of
mutual fund schemes. Fund’s unit holders share the income earned through these
investments. The flowchart below describes broadly the working of a mutual fund.
INVESTOR
passed back to pool their money with
RETURNS FUND MANAGER
generates invests in
SECURITIES
ADVANTAGES OF INVESTING IN MUTUAL FUNDS:
PROFESSIONAL MANAGEMENT:
The primary advantage of funds is the professional management of the money. Investors
purchase funds because they do not have the time or expertise to manage their own
portfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full
time manager to make and monitor investments.
DIVERSIFICATION:
By owing shares in a mutual fund instead of owing individual stocks or bonds, the risk is
spread out. The idea behind diversification is to invest in a large number of assets so that
a loss in any particular investment is minimized by gains in others. Large mutual funds
own hundreds of stocks in different industries. It would not be possible for an investor to
build this kind of a portfolio with a small amount of money.
ECONOMIES OF SCALE:
50
Because a mutual fund buys and sells large amount of securities at a time, its transaction
costs a re lower than what an individual would pay for securities transaction.
LIQUIDITY:
It is easy to get money out of mutual fund. Write a check, make a call and you get the
cash.
REGULATORY OVERSIGHT:
Mutual funds are subject to many government regulations that protect investors from
fraud.
CONVENIENCE:
One can easily buy mutual fund shares by phone, mail or over the Internet.
LOW COST:
Mutual fund expenses are often no more than 1.5% of investment.
CHOICE OF SCHEME:
There are different schemes depending upon the risk appetite and returns required by an
investor.
Mutual funds have their own drawbacks and may not be for everyone. Such as:
NO GUARANTEES:
No investment is risk free. If the entire stock market declines in value, the value of
mutual funds shares will go sown as well, no matter how balanced the portfolio. Investors
encounter fewer risks when they invest in mutual funds then when they buy and sell
stocks on their own.
FEES AND COMMISSIONS:

All funds charge administrative fees to cover their day-to-day expenses. Some funds also
charge sales commission to compensate brokers or financial consultants, or financial
planners.
MANAGEMENT RISK:
51
Investment in a mutual fund depends on the fund’s manager to make the right decision
regarding the funds portfolio. If the manager does not perform well as hoped, one might
not make as much money as expected.
PRESENT SCENARIO:
As per DPE guidelines, PSEs are allowed for investment in Public Sector Mutual Funds
irrespective of tenor and type of scheme from 1997 onwards. But the Company’s policy
does not currently allow for investment in public sector mutual funds, except the UTI
Liquid plan up to a tenor for 6 days subject to maximum limit of 1,000 Crores. But, no
significant investment was made by ONGC in UTILF till one year ago. But, now ONGC
is considering it a good investment avenue for their surplus funds and has also started
making investment in UTILF from March 2007 onwards. It has helped in getting use of
their idle funds for less than 7 days, which cannot be invested in banks.
ANALYSIS OF UTI LIQUID FUND CASH PLAN
UTI Liquid fund provides the PSEs to use their idle funds for less than 7days. As,
investments cannot be made in banks for less than 7days.
FEATURES:
It is an open-ended debt scheme. It means it can be redeemed any time with fulfilling
specified conditions.
It has Direct Debit/ Credit facility with various banks.
It provides tax-free dividends in the hands of investors as the MF pays the DDT
(Dividend distribution Tax).
BENEFITS:
• Investments can be done even for one day.

• Redemption can be done through fax before 3 p.m. and the amount will be
credited to the investor’s bank account and the next working day.
• It is a highly tax efficient scheme.
• It has a well-diversified portfolio where money is invested by UTI.
• Better monitoring of investment performance.
• Constant NAV under Daily Dividend Option.
• Ease of operation.
• It doesn’t involve any kind of entry/ exit load.
52
LIQUID TDRs WITH SBI ONGC MAIN BANKER
This is a special kind of Investment Avenue for ONGC provided by its main banker that
is SBI. Whenever there is idle cash for less than 7days in the Company’s account at the
end of the day, SBI invests it into this scheme. And if the account shows a negative
balance at the end of next day then it transfers the required amount from the Liquid TDR
to the Company’s account, so as to make it positive. A nominal rate of interest is given to
the company for this scheme. This scheme was very much in use before March 2007. But
as now the Company has started investing in UTI Liquid funds and is getting better
returns out of that avenue the proportion of investment in Liquid TDRs has decreased.
CERTIFICATES OF DEPOSITS OF BANKS AND OTHER FIs
Certificates of Deposits (CDs) is a negotiable money market instrument and issued in

dematerialized form or as a Usance Promissory note, for funds deposited at a bank or
other eligible financial institution for a specified period of time. They were introduced in
India in 1989.
FEATURES:
SIZE: The minimum amount of CD should be Rs. 1 lakh and in the multiples of Rs. 1
lakh thereafter.
TENOR: The tenor of CDs issued by banks is from 7days to 1 year. And for FIs it is
from 1 year to 3 years.
DISCOUNT/ COUPON RATE: CDs are issued at discount on face value. Banks/ FIs
are also allowed to issue CDs on floating rate basis provided the methodology of
compiling the floating rate is objective, transparent and market-based. The issuing bank/
FI is free to determine the discount/ coupon rate.
TRANSFERABILITY: CDs are freely transferable by endorsement and delivery. There
is usually a penalty for early withdrawal of funds.
LOANS/ BUY BACKS: Banks/ FIs cannot grant loans against CDs. Furthermore, they
cannot buy-back their own CDs before maturity.
PRESENT SCENARIO
ONGC is permitted to invest in CDs issued by scheduled commercial banks/ other FIs
with rating of Investment grade according to DPE guidelines but the Company’s policy
allows only to invest in CDs with a rating of AA/ P-2or equivalent, subject to a tenor of 1
year and maximum amount to be invested into them is Rs. 1,000 Crores. But at present
the company is not investing in this avenue. Because, Company get better returns from
other avenues and the market for this instrument is not liquid and the main concern for
the Company is liquidity.
53
COMMERCIAL PAPERS (CPs) / CORPORATE BONDS
CPs is an unsecured, short-term debt-instrument issued by a corporation, typically for the

financing of accounts receivables, inventories and meeting short-term liabilities. CPs is
introduced in India from 1990.
FEATURES
SIZE: The minimum amount of CPs should be Rs. 5 lakhs and in multiple of its
thereafter.
TENOR: CPs is issued for maturities between 15days to1 year from the date of issue.
RATINGS: Corporates have to obtain a minimum credit rating of P-2 from CRISIL or
equivalent from such credit rating agency.
DISCOUNT RATE: CPs is issued at discount to face value. And the issuer determines
the rate.
CORPORATE BONDS:
Corporate bond is a bond issued by a corporation. The term is applied to longer-term debt
instrument, generally with a maturity date falling at least a year after their issue date.
Corporate bonds are often listed on major exchanges. Corporates, which are below
investment grade, are also allowed to issue Corporate Bonds.
PRESENT SCENARIO
As per DPE guidelines the company is permitted to invest in these avenues for a
maximum tenor of 1 year with a credit rating of at least Investment grade. According to
the Company’s policy the credit rating of the issuer must be P1+ or equivalent or more
than that. The instrument wise limit for this category is Rs. 1,000 Crores. But at present
ONGC is not investing in this avenue because the Company is getting better returns from
other avenues and the market is not very liquid for this instrument.
GOVERNMENT SECURITIES AND TREASURY BILLS
Government Securities also termed, as G-Sec is an interest bearing debt instrument issued
by the Government of India or State Government through RBI. Government paper with a
tenor beyond one year is known as dated securities. The instrument is in the nature of a
bond. There is no default risk involved in the securities as they carry the sovereign
guarantee. Therefore, if an investor decides to hold the investments till maturity, there is
absolutely no risk and the returns are guaranteed. However, if the investor wants to sell
the security before maturity, the selling price may vary depending up the prevailing
interest rates. Besides, there is an element of re-investment risk.
FEATURES
SIZE: G-Sec is available for a minimum amount of Rs. 10,000 and in multiples of Rs.
10,000.
TENOR: Central government dated securities have tenor up to 30 years and state
government dated securities have a tenor normally up to ten years.
54
COUPON RATE: They are auctioned at fixed coupon rate. Auctions are conducted
electronically on PDO-NDS system. They can also be purchased from secondary market.
TREASURY BILLS
Treasury Bills (T-Bills) offer short-term investment opportunities, generally up to 1 year.

Thus they are useful in managing short-term liquidity.
FEATURES
SIZE: T-Bills are issued at a minimum amount of Rs. 25,000 and in multiples of Rs.
25,000.
TENOR: At present Government of India issues three types of T-Bills, namely 91-days,
182-days and 364-days. There are no T-bills issued by State government.
DISCOUNT RATE: They are issued at discount and are redeemed at par. While 91-days
T-Bills are auctioned every Wednesday, 182-days and 364-days T-Bills are auctioned
every alternative week on Wednesday. T-Bills auctions are held on the Negotiated
Dealing System (NDS) and the members electronically submit their bids on the system
PRESENT SCENARIO
As per DPE guidelines and ONGC’s own investment policy the Company is permitted to
invest in this avenue for a tenor of 3 years with an instrument-wise limit of Rs. 10,000
Crores. But at present the company is not investing in this avenue, because the market
liquidity for this avenue is not satisfactory.
55
FINDINGS
Oil and Natural Gas Corporation Limited (‘ONGC’) is engaged in the business of
exploration and drilling of crude oil and natural gas. The Company’s investment
operations are carried out from its Treasury Department at New Delhi (Jeevan Bharti
Building 8th floor). Since the surplus cash of the Company has been earmarked for future
expansion plans and acquisition of assets, it is imperative for the Company to maintain
adequate liquidity in its investment portfolio. The Company also recognizes that
investment management is not its core business function and accordingly protection of
capital is a key driver for investment decisions. Thus, the Company primarily invests its
surplus funds in bank fixed deposits and UTI liquid fund schemes.
After analyzing the whole investment procedure of ONGC with existing investment
avenues, I can say that ONGC has been following a good investment procedure by
keeping in mind the DPE guidelines to be followed by all PSEs. ONGC has been taking
investment decision on pure commercial basis. It is because of such sound policy that
ONGC has been increasing a higher return on its investment as compared to SBI card
rates.
• All the PSEs have to follow the DPE guidelines for investing their surplus funds
• ONGC has appointed many agencies like PWC, CRISIL and E&Y from time to
time to review its investment procedure.
• The Risk based Limit structure for banks given by CRISIL are quite satisfactory.
• ONGC is following a good investment procedure.
• ONGC is earning a good rate of return higher than SBI Card rate.
Although the Company is following a good investment procedure, but there are certain
points in which the company should look into.
• The Company is following DPE guidelines to invest its surplus funds and it also
has its own investment policy for the same, but from time to time it appoints
different agencies like PWC, CRISIL and E&Y to review its investment policy.
But the frequency at which the policy is required to be reviewed is not stated.
• Currently the company prepares cash forecasts manually. Although interest
accrual computation is SAP is automated, the end-term amount does not include
the interest earned for the incomplete part of the quarter. This adjustment to give
effect to this inaccuracy is currently manually addressed by the Treasury.
• Cash forecasts are prepared for one year with monthly break-ups on rollover basis
and weekly break-ups for first two months.
• Cash forecasting is done at the Head office of ONGC Dehradun and is
communicated to New Delhi by e-mail or fax; it is not included as a part of SAP.
• Two persons currently staff the investment department within the Treasury.
Although investment decisions are made by the investment committee and non-
deal execution functions are managed by the Treasury Department leading to
logical segregation of duties, as the Company diversifies into other investment
avenues wherein finds are placed without a bidding process, segregation of duties
may not be adequately ensured.
56
• Although the Company addresses the manual process for invitation of bids as well
as uses e-bidding software for the same. But it is not fully operational. As
sometimes it cannot be used properly from the lack on the part of the banks or due
to some failure in sever. As well as the software neither generate the comparative
statements of banks nor it updates the placement details of the FDs, which it
should.
• As per DPE guidelines the Company can invest for a tenor of 3 years in FDs as
well in Government securities and T-Bills. But the current investment policy of
the Company limits the investment horizon up to one year, irrespective of the
instrument. This indirectly limits the investment avenues of the Company.
• Currently, the company follows a bidding process to allocate funds in fixed
deposits within the overall risk-based limit structure. In case of a tie in the rates
quoted, funds are allocated in the ratio of net worth. The company may consider
allocating funds in a different way mentioned in ahead in the recommendations.
• As mentioned above the company invites bids for placing FDs with the banks, this
ultimately leads to a kind of competition within the banks to quote a higher rate
for getting the tender. In order to avoid undesirable competition amongst banks
leading to arbitrary hikes in deposit rates (even for short periods), which have
consequences for the economy. Thus the government has given instructions to the
PSEs dated 15th January 2008 that the practice of inviting competitive bids for
bulk deposits should be discontinued forthwith. And at least 60% of their funds
should be placed with the Public Sector banks. They should place their bulk
deposits with the bank(s) with whom they have a regular course of business,
including public sector banks.
• The policy does not currently allow for investment in public sector mutual funds,
except for the UTI Liquid Plan up to a tenor of six days. The DPE guidelines
currently permit investment in PSU mutual funds irrespective of tenor and type of
scheme. Accordingly, the Company may consider enhancing the number of
permissible schemes over a period of time.
• Presently the Company is investing only in FDs, UTI Liquid funds, Inter-
corporate deposits and Liquid TDRs and thus is not fully utilizing its all-
permissible investment avenues.
57
COMPARISION OF INVESTMENT AVENUES PERMITTED BY DPE,
COMPANY’S POLICY AND COMPANY’S PRACTICE
COMPANY
S.No. INSTRUMENT DPE GUIDELINES ONGC POLICY PRACTICE
PERMITTED PERMITTED PERMITTED
(YES/ NO) TENOR (YES/ NO) TENOR (YES/ NO) TENOR
1 FDs YES 3 YES 1 YEAR YES 1
YEARS YEAR
2 LIQUID AND YES N/A YES 6 DAYS YES 6DAYS
MONEY
MARKET
MUTUAL
FUNDS
3 ICDs-1YEAR YES AS PER YES AS PER YES AS PER
TENOR TENOR TENOR
4 LIQUID TDRs YES AS PER YES AS PER YES AS PER
TENOR TENOR TENOR
5 T-BILLS- YES AS PER YES AS PER NO N/A
91DAYS TENOR TENOR
6 T-BILLS-182 YES AS PER YES AS PER NO N/A
DAYS TENOR TENOR
7 T-BILLS-364 YES AS PER YES AS PER NO N/A
DAYS TENOR TENOR
8 G-SEC-3 YES AS PER NO N/A NO N/A
YEARS TENOR
9 G-SEC-1 YEAR YES AS PER YES AS PER NO N/A
TENOR TENOR
10 DEBT YES N/A NO N/A NO N/A
ORIENTED
PSU MFs
11 CPs (AAA)-1 YES AS PER YES AS PER NO N/A
YEAR TENOR TENOR
12 CDs (P1+)-1 YES AS PER YES AS PER NO N/A
YEAR TENOR TENOR
13 EQUITY NO N/A NO N/A NO N/A
58
RECOMMENDATIONS
The present investment policy of ONGC is as per the DPE guidelines and doesn’t involve
any major shortcomings. But still some suggestions, which the company can consider for
the shortcomings mentioned above in the findings, are as follows:
S.No. POLICY REFERENCE SUGGESTIONS

1 Frequency of review of The frequency at which the Policy is required to be
policy revised is not stated. Accordingly, it is recommended
that the Policy specify the time period for review. The
time period for mandatory review of overall policy
parameters and processes may be set at one year
whereas the time period for review of risk based
limits may be set at one quarter.
2 Cash forecasts Currently, Company prepares cash forecasts
manually. It is recommended that the process of cash
forecasting and variance against forecasts be
automated through leveraging SAP. As well as in the
interest accrual computation, the end-term amount
does not include interest. This inaccuracy is manually
addressed. The computation logic in SAP for end-
term amount may be revised to reflect the accurate
value without manual intervention.
3 Cash forecasts tenor The Policy currently requires cash forecasting to be
conducted for one year. To enable effective
deployment of funds for longer horizon, the policy
may require that the horizon for cash forecasting be
increased to three years wherein monthly forecasts are
prepared for the first year and quarterly forecasts
thereafter.
4 Communication of Cash Cash forecasts are communicated to TMG via e-mail
forecasts to TMG or fax, it is recommended that cash forecasting and
variance analysis should be included as a part of SAP.
This would facilitate automation of the process and
reduce communication gaps.
5 Logical Segregation of There are only two persons staffed at TMG, now as
duties at TMG the company diversifies into other investment
avenues, segregation of duties may not be adequately
ensured. Accordingly, it is recommended that a
logical segregation between Front and Back Office be
created within the Investment Department.
59
6 E-bidding Software Although the Company uses e-bidding Software for
inviting bids for the placement of FDs, but sometimes
it is not properly used. This point should be checked,
as some banks do not place their bids through it and
places the bids manually or via post. They should be
asked to place bids with e-bidding software.
7 E-bidding Software The investment entries in SAP are currently made
manually after the Investment Committee takes the
investment decision and the investments are made. It
is recommended that the Company consider
automated updating of SAP based on the investment
entries made in the e-bidding software post actual
allocation approved by the investment committee
members and investments made.
8 Investment Horizon The current investment policy of the Company limits
the investment horizon up to one year, irrespective of
the instrument. This limits the Company's investment
avenues and in turns its returns. Accordingly the
company may consider increasing the investment
horizon up to 3 years in line with the prevailing DPE
guidelines.
9 Allocation of funds in case The policy proposes allocation of funds based on the
of tie for the bids for FDs net worth of the bidder. This may however not lead to
the most optimal risk weighted return. Accordingly it
is recommended that in case of a tie, funds be
allocated in the following manner:
To the least risky bank in terms of external credit
rating.
In situations of tie in the credit rating of the banks, the
funds may be allocated in the ratio of CRAR.
10 Investment in other asset The company may consider increasing the investment
classes horizon for the existing instruments. As well as it can
consider broadening its investment portfolio.
60
RECOMMENDATIONS WITH RESPECT TO DIFFERENT INVESTMETN
AVENUES
FIXED DEPOSITS WITH BANKS: The Company is at present investing for a tenor of
only 1 year with banks. As it is permitted to invest in this asset class up to a tenor of 3
years, the company can consider increasing its investment horizon with respect to this
avenue. The main concern for ONGC is liquidity, so it can park 50% of its funds in FDs
for more than 1 year for which the company is sure that these funds are not required by
the company for this much time period.
For increasing the investment horizon of the FDs, the company has to do the Cash
forecasting for 3 years, so that it can clearly calculate the amount that will remain idle
with the Company for more than 1 year. Then it will be possible for the company to
invest in FDs for more than 1 year.
If the Company will broaden its investment horizon with this avenue, then the company
will get better returns as depending upon the time period of the investment. As it can be
clearly understood from the chart given below. As the duration of FD increases, returns
given on it also increases.
RATE OF RETURNS ON FDs

DURATION INTEREST RATE (%) PER ANNUM
15-30 days 5-7%
30-45 days 5-8%
46-90 days 6-8%
91-180 days 6.5-9.5%
181-365 days 7-9.5%
1-1.5 years 8.5-10.25%
1.5-2 years 8.5-10.5%
2-3 years 9-10.5%
3-5 years 9.5-10.5%
5 years 9.5-11%
61
MUTUAL FUNDS: Currently Company invests in UTI Liquid funds for 6 days.
• It is recommended that the Company may consider to park the funds for 1 month
so that to get better returns from it.
• As well as it can also consider other top performing PSU mutual fund houses such
as Life Insurance Corporation of India, State Bank of India, Bank of Baroda, etc
and can follow a bidding process as in the case of placing the funds for FDs.
• Company can also consider investing in the FMP (Fixed Mutual Plan) Schemes of
the PSUs Mutual Fund houses for parking their idle funds for one month.
If the company wants to start investing in this avenue then, it has to do some basic
improvements in its infrastructure. They are as mentioned ahead:
• Subscription to research reports to evaluate ratings and performance of mutual
funds schemes.
• Customize SAP to capture deal data relating to investments in mutual funds.
GOVERNMENT SECURITIES AND TREASURY BILLS: G-Sec and T-Bills are

sovereign securities and are backed by a Central Government guarantee in case of default.
Accordingly, the probability of default for this asset class is considered as zero. It may be
noted that the returns from G-Sec and T-Bills have been lower than the returns from FDs.
A glance at the returns from these avenues is as follows:
ASSET CLASS RETURN

T-Bills 91-days 182-days 364-days
8.06% 7.68% 8.25%
G-Sec 1 year 2 years 3 years
7.47% 7.48% 7.59%
However, in the case the returns from G-Sec and T-Bills exceed those
from FDs, the Investment Committee may decide to allocate funds towards this avenue.
If the company wants to start investing in this avenue then, it has to do some basic
improvements in its infrastructure. They are as mentioned ahead:
Opening of CSGL account to facilitate transactions on the NDS platform, because to
investment in to this avenue takes place through this NDS platform.
Company has to evaluate impact of changes in market variables and market news, so as to
be updated about the market liquidity of these assets.
62
CONCLUSION
From the study of overall process of investment of short-term surplus of ONGC, I can
conclude that it has devised a sound process of investment, which, is purely based on
commercial basis. The Company is following the DPE guidelines to park its surplus
funds, which all the PSEs have to follow. Along with it the Company has its own
investment Committee which look after every aspect before investing the funds. The
Company appoints different agencies from time-to-time to review its investment process.
The Risk based limit structure for banks proposed by CRISIL is quite satisfactory. As the
Company is a PSE, its major concern is the protection of capital and to maintain adequate
liquidity. Thus, the Company do not invests its funds with any instrument for more than
one year to meet any unforeseen contingencies. Similarly, the Company properly takes
care of Default probability of each avenue before investing the funds with it. And hence,
do not invest its funds with those instruments, which have risk associated with them.
The major portion of the Company’s funds is invested with the FDs with the banks
(97%) and the Company is getting good returns from there. But at the same time there are
some other avenues available for the Company in which it can invest and can get better
returns from there in comparison what it is getting at present i.e. Mutual Funds. They are
also in line with the guidelines given by DPE. Thus, the Company still has a lot of scope
to broaden its investment portfolio.
At last to conclude I would like to add that whatever the Company is doing at present
with respect to invest its short-term surplus funds, depending upon its risk appetite is
commendable.
63
LEARNINGS
During the Summer Internship Program (SIP) at ONGC, New Delhi I devoted all my
efforts systematically over a period of two months to gain as much knowledge as I can
and add something useful to myself. These months proved as hands-on experience in
corporate exposure, business communication and filling in the space between corporate
and B-school students.
PROJECT LEARNINGS
• Investment procedure of short-term surplus funds of ONGC.

• The basic guidelines of DPE that are to be followed by every PSE to park its idle
funds.
• Study of Risk based limit structure for banks developed by CRISIL.
• Study of different investment avenues in which a company can invest in to.
• Study of ratings given by different rating agencies for different instruments.
INDIVIDUAL LEARNING
• It is not a cakewalk to work with a PSE, as it is a misconception with the general

public.
• Always try to be as cheerful as you can, because the solutions for the problems
come with a calm and composed mind.
64
ANNEXURES- CRISIL REPORT
Annexure 1 - List of banks satisfying Level 1 criteria

Bank Name Bank Name
ANDHRA BANK UNITED BANK OF INDIA
BANK OF BARODA VIJAYA BANK
BANK OF INDIA JAMMU & KASHMIR BANK
CANARA BANK STATE BANK OF INDORE
HDFC BANK UTI BANK
ICICI BANKING CORPORATION STATE BANK OF BIKANER & JAIPUR
ORIENTAL BANK OF COMMERCE INDUS IND BANK
PUNJAB NATIONAL BANK STATE BANK OF SAURASHTRA
STATE BANK OF INDIA STATE BANK OF MYSORE
STATE BANK OF PATIALA STATE BANK OF TRAVANCORE
UNION BANK OF INDIA BANK OF MAHARASHTRA
CORPORATION BANK VYSYA BANK
STATE BANK OF HYDERABAD KOTAK MAHINDRA BANK
SYNDICATE BANK KARUR VYSYA BANK
CENTRAL BANK OF INDIA ALLAHABAD BANK
UCO BANK FEDERAL BANK
INDIAN OVERSEAS BANK KARNATAKA BANK
Note: The satisfaction Level I Criteria is based on publicly available audited

financial results for the year as of 31st March 2003, except in the case of
banks like Punjab & Sind Bank, Global Trust Bank whose audited results
were not available.
65
Annexure 2 - Results of risk scoring conducted using Cramel model

Cramel Cramel
based based
Risk Resik
Bank Name Grade Bank Name Grade
ANDHRA BANK a UNITED BANK OF INDIA b
BANK OF BARODA a VIJAYA BANK b
BANK OF INDIA a SYNDICATE BANK b
CANARA BANK a STATE BANK OF INDORE b
HDFC BANK a UTI BANK b
ICICI BANKING CORPORATION a STATE BANK OF BIKANER & JAIPUR b
ORIENTAL BANK OF COMMERCE a INDUS IND BANK c
PUNJAB NATIONAL BANK a STATE BANK OF SAURASHTRA c
STATE BANK OF INDIA a STATE BANK OF MYSORE c
STATE BANK OF PATIALA a STATE BANK OF TRAVANCORE c
UNION BANK OF INDIA a BANK OF MAHARASHTRA c
CORPORATION BANK a VYSYA BANK c
STATE BANK OF HYDERABAD a KOTAK MAHINDRA BANK c
JAMMU & KASHMIR BANK b KARUR VYSYA BANK c
CENTRAL BANK OF INDIA b ALLAHABAD BANK d
UCO BANK b FEDERAL BANK d
INDIAN OVERSEAS BANK b KARNATAKA BANK d
66
Annexure 3 - Results of risk scoring using equity

price based dynamic scoring model
Bank Name Risk Grades

(Equity based
model)
ANDHRA BANK 1
INDIAN OVERSEAS BANK 1
ORIENTAL BANK OF COMMERCE 1
STATE BANK OF BIKANER & JAIPUR 1
STATE BANK OF INDIA 1
STATE BANK OF TRAVANCORE 1
SYNDICATE BANK 1
BANK OF BARODA 2
HDFC BANK 2
BANK OF INDIA 2
CORPORATION BANK 2
INUS IND BANK 2
JAMMU & KASHMIR BANK 3
VIJAYA BANK 3
UTI BANK 3
FEDERAL BANK 3
VYSYA BANK 3
KARNATAKA BANK 4
KARUR VYSYA BANK 4
67
Annexure 4 - List of banks satisfying Level 1 criteria

Combined Combined
Risk Risk
Bank Name Grade Bank Name Grade
ANDHRA BANK A UNITED BANK OF INDIA B
BANK OF BARODA A VIJAYA BANK B
BANK OF INDIA A JAMMU & KASHMIR BANK B
CANARA BANK A STATE BANK OF INDORE B
HDFC BANK A UTI BANK B
ICICI BANKING CORPORATION A STATE BANK OF BIKANER & JAIPUR B
ORIENTAL BANK OF COMMERCE A INDUS IND BANK C
PUNJAB NATIONAL BANK A STATE BANK OF SAURASHTRA C
STATE BANK OF INDIA A STATE BANK OF MYSORE C
STATE BANK OF PATIALA A STATE BANK OF TRAVANCORE C
UNION BANK OF INDIA A BANK OF MAHARASHTRA C
CORPORATION BANK A VYSYA BANK C
STATE BANK OF HYDERABAD A KOTAK MAHINDRA BANK C
SYNDICATE BANK B KARUR VYSYA BANK D
CENTRAL BANK OF INDIA B ALLAHABAD BANK D
UCO BANK B FEDERAL BANK D
INDIAN OVERSEAS BANK B KARNATAKA BANK D
68
Annexure 5 - Recommended Exposure Limits for Banks

Bank Name Risk Exposure
Grade Limit
STATE BANK OF INDIA A 1875
BANK OF BORADA A 1309
ICICI BANKING CORPORATION A 1241
CANARA BANK A 1237
PUNJAB NATIONAL BANK A 1105
BANK OF INDIA A 1001
CORPORATION BANK A 707
ORIENTAL BANK OF COMMERCE A 629
UNION BANK OF INDIA A 618
STATE BANK OF PATIALA A 421
HDFC BANK A 402
STATE BANK OF HYDERABAD A 373
ANDHRA BANK A 333
Total Limits - Category A 11251
Grade Limit
UNITED BANK OF INDIA B 535
CENTRAL BANK OF INDIA B 532
INDIAN OVERSEAS BANK B 371
SYNDICATE BANK B 332
UCO BANK B 260
STATE BANK OF BIKANER & JAIPUR B 258
VIJAYA BANK B 214
JAMMU & KASHMIR BANK B 62
STATE BANK OF INDORE B 167
UTI BANK B 157
Total limits - Category B 2888
Grade Limit
BANK OF MAHARASHTRA C 267
STATE BANK OF TRAVANCORE C 206
STATE BANK OF SAURASHTRA C 178
STATE BANK OF MYSORE C 123
ING VYSYA BANK C 35
KOTAK MAHINDRA BANK C 27
INDUS IND BANK C 26
Total Limits - Category C 862
Maximum Investible Surplus: Rs. 10,000 Crores

Overall Limit size assumed: Rs. 15,000 Crores. Limits given above are in
Rs. Crores
69
ANNEXURES- INVESTMENT PROCEDURE
Annexure 6
CONSTITUTION AND QUORUM FOR INVESTMENT COMMITTEE
The investment Committee will comprise of Chief/ Head Corporate Affairs &
Coordination at Delhi, Chief/ Head – Commercial, GM (F&A)-Treasury and Company
Secretary and the proposals for investment of funds requiring approval of Director (HR)
and Director (Finance) & C&MD should be put –up by the Investment Committee and in
case of absence of any Member, any officer in his department not below the level of E-6
(Dy. General Manager), will represent the Member in the Investment Committee and
three Members present in person or through such departmental officer, in case of
investments for 15 days or above, and two members in person or through such
departmental officer, in case of investments up to 14days, would constitute the quorum
for the Investment Committee. I
Annexure 7
LIST OF INVITEES FOR OFFERS FOR INVESTMENT OF SURPLUS FUNDS
1. The following parties are to be invited for investment of short term surplus funds
by ONGC, Subject to availability of exposure limits:
• For investment in term deposits and rated instruments issued by banks,

invitees shall comprise of the list of empanelled banks, as approved by the
Board.
• For Inter-corporate loans, the invitees shall comprise of central Navaratna
PSEs having highest credit rating. Accordingly, invitees will comprise of
Indian Oil, GAIL, NTPC, SAIL and BHEL, should to the availability of
highest credit rating.
• For investment in rated bonds/ CPs as well as T-bills/ Govt. securities, the
invitees should comprise of Primary Dealers promoted by one or more
scheduled commercial banks (registered in India)/ financial institutions,
and operating at Delhi.
2. In case of banks, invitation will be sent to the Zonal Office at Delhi or to branch at
Delhi nominated by Zonal Office of the respective bank. In case of SBI, the
invitation shall be made to Tel Bhawan Branch (where the banking facilities of
ONGC are centralized) and New Delhi Main Branch (where ONGC maintains its
current account).
70
Annexure 8
DELEGATED POWER FOR INVESTMENT DECISIONS
The authority to take decisions on investments of funds up to one year maturity has been
delegated by the Board of ONGC to a designated group of Directors (“Designated Group
of Directors”), consisting of Director (HR) and Director (Finance) & C&MD of the
company. The outstanding amount of investments made by the Designated Group of
Directors under the delegated powers shall not exceed Rs. 16,000 Crores in aggregate at
any point of time.
Annexure 9
PERFORMA OF TENDER NOTICE
Tender No:
Tender Subject: Investment of Short Term Surplus Funds by ONGC
Indicative Investment Date: …June 2008 to …June 2008
Bid Valid Up to: …June 2008
Tenure: Between 7days to 8 days
Remarks:
Indicative Amount: Rs…in Crores
Revised Amount: Rs…in Crores
71
Annexure 10
PERFORMA OF COMPARATIVE STATEMENT
72
Annexure 11
PERFORMA OF INVESTMENT AUTHORITY NOTE
INVESTMENT AUTHORITY NOTE

File Ref. No…….
Value Date….
DGM (F&A), Delhi is hereby requested and authorized to make the following investment:
Party Name
Name of Bank
Branch code
RTGS Code
Account No
Instrument
Folio No
Amount Rs…….Crores (Rs. …….Crores Only)
Investment date ………..,2008
Maturity date Notice will be given one day in advance
Approval of competent authority exists for the investment
Manager-(F&A)-Treasury F&A Officer-Treasury
Copy:
1.By fax:
2.By Hand to….Bank
73
BIBLIOGRAPHY
• Annual Report on ONGC (2006-07)
• Websites:
o www.ongcindia.com
o www.investopedia.com
o www.ppac.org.in
o www.crisil.com
o www.utimf.com
o www.moneycontrol.com
o www.valuereseachonline.com
o www.rbi.org.in
o www.lic.com
o en.wikipedia.org
o www.google.co.in
o petroleum.nic.in
74
GLOSSARY
• AMC: Asset Management Company

• CD: Certificate of Deposit
• CP: Commercial Paper
• CRISIL: Credit Rating Information Services of India Limited
• CSGL: Constituent Subsidiary General Ledger Account
• DPE: Department of Public Enterprises
• E&Y: Ernst & Young
• G-Sec: Government Securities
• ICDs: Inter Corporate Deposits
• NAV: Net Asset Value
• NDS: Negotiated Dealing System
• ONGC: Oil and Natural Gas Corporation Limited
• PD: Probability of Default
• PSE: Public sector Enterprises
• T-Bills: Treasury Bills
• TDR: Term Deposit Receipt
• TM: Treasury Management
75

Project Report - Meenu

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A PROJECT REPORT ON

“THE STUDY OF SHORT TERM INVESTMENT POLICY OF ONGC”

A SUMMER PROJECT STUDY SUBMITTED IN PARTIAL FULFILLMENT

APEEJAY SCHOOL OF MANAGEMENT, DWARKA, NEW DELHI

I am indebted to my Company guides Mr.D.S.Misra, CM (F&A), Mr. Amarjeet Singh

I express my deep sense of gratitude to my college guide Mr.Avijit.Chakravarti, for

The project was a tough journey but a learning experience.

Meenu (!5/029-PGDM 1A)

S.No. TOPIC PAGE No.

TREASURY MANAGEMENT (TM)

MEANING OF TREASURY MANAGEMENT

So, in simple terms TM is management of an organization’s total wealth (Resources)

TREASURY MANAGEMENT IN ONGC (INVESTMENT OF SHORT TERM

ONGC VISION & MISSION

HYDROCARBON DISCOVERY IN INDIA (Till 2007)

HYDROCARBON DISCOVERY IN INDIA

OIL DISCOVERY IN INDIA

ONGC discovers major portion of discovery of Oil in India i.e. 77%

GAS DISCOVERY IN INDIA (Till 2007)

GAS DISCOVERY IN INDIA

ONGC also discovers major portion of gas in India i.e. 62%.

CRUDE OIL PRODUCTION IN INDIA (‘000’ TONNES) (2006-07)

ONGC 26051 76.65%

CRUDE OIL PRODUCTION IN INDIA ('000' TONNES)

ONGC 22443 70.69%

NATURAL GAS PRODUCTION IN INDIA(MILLION CUBIC METRES)

Director Director Director Director Director Tech & Director

Mumbai Ahmedabad Western HRD Chief Drilling Internal

• ONGC is facing difficulties to produce oil from aging reservoirs.

The project is to study the short-term investment policy of ONGC.

• Study of DPE guidelines:

• Study of CRISIL report:

• Study of Investment Procedure of the Company:

• Study of Investment Avenues of ONGC:

• Study of Investment Portfolio of the Company:

• Study of other investment avenues:

STUDY OF DEPARTMENT OF PUBLIC SECTOR ENTERPRISES (DPE)

PRINCIPLES CONCERNING INVESTMENTS

• The PSEs should observe the following guidelines in regard to investment of

*Under current DPE guidelines direct investment in equity is not permitted.

The main objectives of the report were:

• Develop a risk-based limit structure for exposures to banks/other counter-parties.

The purpose of the report was:

• To review existing investment processes.

REVIEW OF PERMITTED INVESTMENT AVENUES

PROPOSED INSTRUMENTWISE LIMITS

PROPOSED INSTRUMENTWISE LIMIT STRUCTURE

PROPOSED RISK BASED LIMIT STRUCTURE FOR BANKS

MAIN PROCESS I: RISK GRADING OF BANKS

MAIN PROCESS: CONVERTING RISK GRADES TO RISK LIMITS

• Mapping Crisil Default Probability Data to the Risk Grades- A, B, C.

MAPPING CRISIL DEFAULT

COMBINED RISK GRADES OF

CRAMEL BASED RISK EQUITY PRICE BASED

INITIAL SHORT LIST OF BANKS

RISK BASED LIMT STRUCTURE OF BANKS PROPOSED BY CRISIL

CRAMEL BASED MODEL – Parameters for risk scoring:

CRAMEL BASED CRISIL PROPRIETARY

CRAMEL BASED RISK SCORES

SCALES USED FOR SCORING

EQUITY PRICE BASED CRISIL PROPRIETARY

EQUITY PRICE BASED DYNAMIC SCORE

DECISION LOGIC TO COMBINE SCORES

Risk Weight = 976.5N (1.118G (DP)+1.288)[1+0.0470(1-DP)/DP0.44]