"The legal aspects (of the sanctions) are not very clear. We presume the US banks are not allowed to lend to the government. We will act accordingly," a treasury head of a leading US bank said.

He said taking a position in government securities would remain a non-starter till the legal aspects were cleared. Asked when the air around the legal aspects would clear, he said, "Your guess is as good as mine".Of the four US banks operating in the country, Citibank, Bank of America and American Express Bank are viewed as big players, while Chase Manhattan has relatively less exposure. "We have not yet decided whether to bid or not. Things are not very clear," the official said.

These banks have been selling securities after the imposition of sanctions. Dealerssaid American banks' decision to stay away from the bidding was not at all suprising. "Given the legal ambiguity, they are likely to stay away. But the decision may not have an impact as these banks generally stay away from long-term securities' bidding", a money-market dealer at a leading brokerage said.

According to sources, foreign banks have decided to maintain their minimum reserve requirements. "They will not pick up any medium- to long-term security till a clearer picture emerges. The budget will give the foreign banks a direction," a dealer said.

Meanwhile, the US banks have started buying treasury bills with a vengeance over the last few days to maintain the Reserve Bank of India-stipulated 25 per cent statutory liquidity ratio (SLR).

This is a reversal of the earlier trend. Most American banks had made a beeline to disinvest their gilt holdings at a discount after the sanctions were imposed.

The US banks have invested more than Rs 100 crore in the short-dated T-bills maturing in May-Juneover the last four days, money-market sources said.Citibank and American Express Bank figure among US banks which have invested primarily in 14-day and 91-day T-bills. Citibank also bought short-dated security maturing in 1999 from the secondary market worth Rs 25 crore on Friday.

"Since 25 per cent SLR is part of the prudential norms, banks have no choice but to maintain it. However, as a strategic move, they have shifted focus from dated securities to short-term T-bills as it will not be difficult to get out of the investment in case the need arises," a money-market dealer said.

Over the last four days, the market has seen hectic trading in T-bills. "Banks are investing in short-dated securities maturing in 1999 and 2000.In the T-bills segment, the US-based banks have invested in very short-dated 14- to 91-day T-bills," a fund manager from a nationalised bank said.

"Investment in T-bills is more attractive as the banks usually buy T-bills from the secondary market at a discount though at the time ofmaturity, they get the full amount," said a dealer from a private bank.

The confusion over the interpretation of the US sanctions under the Nuclear Proliferation Prevention Act of 1994 led to the selling pressure in the secondary market as the banks are not clear whether maintaining a 25 per cent in SLR securities with the RBI implies keeping funds with the government, dealers said.