New generation private sector ICICI Bank is leading the pack. It is in the process of launching a MMMF to protect its low cost saving deposits portfolio. Unit Trust of India, Industrial Developement Bank of India and Kothari Pioneer float MMMFs in the first round.

ICICI Bank will be the first bank to lauch such a fund as ABN-Amro Bank which had received permission to set up one has decided to put such plans into the backburner due to tax problems. Bank of Madura has also received permission to launch the MMMF a year back but is yet to take the plunge.

Bankers said that the RBI's decision to allow MMMFs cheque writing facility to investors through a tie-up with a bank could result inthe diversion of saving deposits of these banks to the funds.

Sources in ICICI Bank said that the board has given the green signal for setting up a money market MF. "We are now considering whether to go for a money market deposit account wherein we will appy to the Reserve Bank to form a separate asset management company in which case we will have to approach the Securities & Exchange Board of India," ICICI Bank's senior executive vice-president PH Ravikumar said.

"Although we will be targeting those saving deposit holders who have excess money to park at the MMMF we will also try to retain the exisiting ones by offering this facility," he added.

Sources said that the MMMF will not come in direct competition with the liquid fund floated by Prudential ICICI as this MF will exclusively invest in treasury bills and government of India securities maturing in less than one year. ICICI-Prudential Liquid fund also gives cheque-in facility through a tie-up with ICICI Bank.

"The proposed MMMF will not compete(with ICICI-Prudential) simply because the MMMF will be invested in risk-free instruments unlike the liquid fund where one can invest in risky instruments for higher returns," a source said.

Post credit policy, with the RBI allowing cheque writing facility, an investor can be in a position to issue a cheque after an initial lock-in of 15 days. Bankers are of the view that as saving bank account offers 4.5 per cent--against a minimum of 8 per cent offered by the existing MMMFs--saving deposits in metros are likely to move to these MFs.