In a parallel development, cracks have surfaced even within US banks on the issue of sanctions against India. At least one West Coast-based US bank has informed the New York branch of one Indian bank that it will not take a hardline and continue to do business with Indian banks in the inter-bank money market.

"The office of foreign assets committee (OFAC) of the US administration has so far not come out with any clarification (on US banks lending to state-owned Indian banks and companies). We will continue to have business transactions with Indian banks in the inter-bank market," an official in a leading US bank told TheFinancial Express.

Leading US banks like BankAm, Citi and CSFB, which have subsidiaries outside the US, are meeting on Monday to take stock of the situation and draw up a plan of action for the future in regard to what role their subsidiaries can play against the backdrop of US sanctions.

In yet another development, BankAm confirmed on Friday that all non-credit activities like collection of export bills and cheques on behalf of the State Bank of India (SBI) will continue. It has told the State Bank's global link office which handles correspondence banking that it will stand by all non-credit activities of the bank.

So far, no US bank has withdrawn the bilateral overdraft facility to Indian banks; only US clearing banks have done so.Even so, Indian banks are unlikely to face any liquidity problem as British, French and Italian banks have pledged support to their Indian counterparts. "If the sanctions continue and US banks get out from all business transactions with Indian banks, the European bankswill step in," sources said.

SBI, which has the maximum number of branches in the US among Indian banks, has a committed line of offer to the tune of $2 billion from UK, Belgian, French and Italian banks.

The bank has not borrowed from US banks for quite some time as it was flush with liquidity. "Big Indian PSUs like MTNL and SAIL parked their GDR proceeds with SBI. Besides, the bank had kept its own GDR funds with its New York branch. In addition to that, we have sizable export earners foreign currency (EEFC) deposits in US branches," SBI sources said.

Bank of Baroda and Bank of India, in contrast, depend primarily on their deposit liabilities to back assets. "We have an arrangement of money lines. They are not reciprocal lines but undisclosed lines. As and when we require, we can draw them," a BoI executive said. The money lines -- meant for short-term funds -- vary from overnight to seven-day and even six-month funds. So far none of the US banks has withdrawn this facility.

Barring a stray case(Chase Manhattan acting tough), no US bank has withdrawn the bill discounting facility against LCs of Indian importers. "In the worst case, if this happens with other US banks, European Banks like ABN Amro are ready to bail us out. We may have to restrict LC opening to certain cities where non-US banks will honour them," sources said.