The central bank plans to allow Russia's best banks to abolish limits on household deposits on July 1, freeing them to try to prize some $20 billion which the Russian population is estimated to hold in under-the-mattress money.

The retail market is the cheapest source of funds in Russia, and Sberbank holds 76.23 per cent of it.

"We hope to fight not only for the remaining 25 per cent, but also for Sberbank's share," said Leonid Klochkov, deputy chairman of one of Russia's largest banks, SBS-Agro.

"We are heading for a time when deposits will become the main component of our resources, the same as for Sberbank. We are working on it very seriously."

Sberbank officials declined to comment.

An official at another big bank, Inkombank, said it would try to lure Sberbank's traditional clients, elderly Russians who receive pensions and make utilities paymentsat Sberbank.

Inkombank already offers those services and plans to expand them, he said.The State Statistics Committee says households held 138 billion roubles ($22 billion) in banks on December 1, 1997, and the central bank forecasts that will double by the end of the millennium. Bankers agree.

"Our goal is to at least double household holdings in our bank, and I think this trend will be typical for other healthy banks," Klochkov said, adding that SBS-Agro held more than five billion roubles in individuals' deposits at the start of the year. He said the bank wanted to meet an international standard ratio of 70 per cent household deposits and 30 per cent company deposits.

"We would like to be quite close to the ratio either by the end of this year, or next year," he said.

But the Inkombank official said he did not expect a sharp inflow of new clients' funds after the new regulation came in force, because competition on the market was very strong.

Sberbank also has a key advantage -- its deposits areguaranteed by the government, but those of commercial banks are not.

"Quite a wide category of depositors think a lot about guarantees, given the experience of the past years, MMM and others," the Inkombank official said, referring to Russia's most notorious pyramid scheme, which robbed thousands of their savings.

"It will take quite a long time to overcome this mistrust."

The State Duma lower house of parliament has passed a bill to set up a fund to guarantee commerical bank deposits, but the central bank strongly opposes it, saying it is too expensive. It proposes setting up a system for banks to guarantee each other.

Klochkov said confidence was already building among a younger generation.

"The Soviet mentality was like -- there is no other god but Allah... and there is no other bank but Sberbank," he said. "But the number of doubting Thomases is decreasing.

I think we shall head into the third millennium with decent relations between commercial banks and depositors."

Commercial banks, likeSberbank, have also been criticised for not being competitive enough.

The Russian European Centre for Economic Policy said in a research note that both households and enterprises hold much of their savings in oreign currency and mostly outside the domestic banking system.

One of the main reasons was inefficient and uncompetitive banks.

Russian banks have high net interest margins -- the spread between borrowing rates and lending rates -- indicating low efficiency, high costs, high profits and low competitiveness, it said. Depositors are not compensated adequately for their risks.

Banks also offer few services, such as credit cards, which are popular in the West.

Bankers say they must expand their networks in order to compete with Sberbank, which has more than 32,000 outlets.

"Since the population is scattered around the country, the most competitive bank will be the one with a wide network. Only through a developed network can you work successfully with households," Klochkov said. SBS-Agroaquired 1,200 branches two years ago, when it purchased a controlling stake in Agroprombank. But Klochkov said SBS wanted to have a branch in every big city. Inkombank also plans to expand, as does powerful Uneximbank, a newcomer to retail banking, which plans to add to two Moscow retail outlets with at least six more in the capital this year.

But Andrei Ivanov, a banking analyst at Moscow's Troika Dialog investment company, said a bank would need thousands of branches to seriously compete with Sberbank.

He said a proposal put forward by major banks could be a solution, though. Banks suggest forming a semi-commercial bank linked to the federal mail service, which has 40,000 post offices, and transfers money and pensions.

The government would keep control of the new bank, estimated to cost around $1 billion to set up, but allied commercial banks would find it easier to compete, given the size of the postal network.

"If they manage to do this, there will be a realistic possibility to capture some ofSberbank market," Ivanov said.

"But it is not a matter of a near future. Banks do not have the money and under the current market situation it will be difficult for them toborrow."

In the meantime, he said, commercial banks could count only on taking one to two per cent of Sberbank's market in major cities.

The Inkombank official, looking to the billions of dollars in mattress money that was still up for grabs, was not worried. "Private depositors hold the future," he said. "Households are an almost inexhaustable source of funds."