Oil billionaire Gordon Getty has locked horns with banking giant Citicorp as the two compete to buy the ailing National Permanent Bank, the District's second-largest thrift institution.

Federal regulators put National Permanent up for sale in January in the hope of finding an outside investor to pump additional cash into the institution. Bank officials disclosed the rival bids to shareholders at an annual meeting yesterday.

National Permanent President and Chief Executive Stuart A. McFarland told shareholders that a bid was made by Getty, "an individual who leads a group with substantial local D.C. participation," to buy and operate it as a savings and loan institution. Getty, a resident of San Francisco who dabbles in composing and opera singing, could not be reached for comment yesterday, and McFarland would not speculate on who the local participants might be.

Local banking sources, however, said that Marc E. Leland, a local lawyer and former assistant secretary of the Treasury, was among the local executives who would be named a director of National Permanent if Getty wins the bid for the thrift. Leland was out of town yesterday and could not be reached for comment.

McFarland also told shareholders that he understood Citicorp was negotiating with federal regulators to buy National Permanent and convert it to a bank, "thereby extinguishing it as a local institution."

He said he had "learned" that Citicorp would complete the conversion by buying a small D.C. bank and merging National Permanent into it. Neither McFarland nor Citicorp would speculate which bank Citicorp is eyeing, but several local banking officials said the likely candidate is American Indian Bank, a tiny institution that caters to American Indians and has one D.C. office.

Industry sources say Getty is working closely with National Permanent management and that his bid has the backing of the U.S. Savings League, a powerful lobby for the savings and loan industry that opposes converting S&Ls to banks.

The league is influential with the Federal Home Loan Bank, the federal agency that regulates S&Ls and decides which bidder will be awarded a failing institution.

With court decisions and market forces deregulating the financial services industry, National Permanent's fate is of key interest to Congress, regulators and financial executives. Whether to preserve a distinction between S&Ls and banks or whether to give control of failing S&Ls to out-of-state banks are among the many issues over which lawmakers and financial executives disagree.

When competing bids are made for an S&L, bidders promise to infuse new funding into the troubled institution as long as the federal fund that insures deposits pledges to kick in some federal assistance, which could range from federal promissory notes to cash.

Federal law reguires the bank board to give preference to bidders who demand the least amount of federal assistance. It also requires the bank board to preserve the distinction between S&Ls and banks whenever possible and to give preference to local bidders.

Bank board officials will not comment on bids. But agency spokesman Pat McKelvey said that an investor with local support probably would be given preference over an out-of-state bank, assuming the bids of each were proper and the cost to the government was about the same.

But McKelvey cautioned that no two cases are alike, and the law gives the bank board a great of leeway in awarding bids.

The bank board was expected to announce the winning bid for National Permanent this week but postponed it because of a glitch in negotiations, according to one source close to the bidding process. Getty's bid could have caused the delay, the source said.

Citicorp officials and National Permanent's management may not agree on who should own the failing S&L, but they agree that a decision needs to be made soon.

"The process of reaching a decision . . . has taken much longer than I expected or desired," said McFarland, who in January submitted a plan for a group of investors he leads to buy National Permanent.

"Time is of the essence in matters such as these, because National Permanent , operating under the constraints imposed by regulators during the bidding process , is unable to take full advantage of the strong mortgage market and favorable interest rates," he told shareholders.

Getty was the center of the struggle for control two years ago of Getty Oil Co., which was founded by his father, oil tycoon J. Paul Getty.

The younger Getty arranged to transfer control of the company to himself and Pennzoil Co., an attempt that ended in the purchase of Getty Oil by Texaco Inc. and a multibillion-dollar lawsuit between Pennzoil and Texaco.

National Permanent has lost money every year since 1980. Last fall, the bank board permitted it to boost its assets by $51.8 million with notes issued by the bank board. The notes pushed National Permanent's net worth -- the difference between assets and obligations -- to $1,000