U.S. sanctions against Pakistan and India could curtail U.S. banks' efforts to develop operations in those countries and in other emerging markets, industry sources warned.

"Emerging markets have become radioactive for U.S. banks," said Gary Kleiman, president of Kleiman International Consultants Inc., a Washington financial advisory firm.

Mr. Kleiman said that if the United States continues to slap economic sanctions on developing countries for nuclear testing or other reasons, U.S. banking companies will find it increasingly difficult to expand in those markets.

A U.S. government interagency committee that includes the Treasury Department and the Department of Commerce is drafting details of the sanctions that are to be imposed on India and Pakistan for their recent nuclear bomb tests.

Sources said the guidelines for banks and other U.S. corporations are to be released shortly. The sanctions are being imposed under the 1994 Nuclear Proliferation Prevention Act.

The threat of sanctions, coupled with measures adopted by Pakistan to freeze $13 billion of foreign currency accounts, prompted Standard & Poor's last week to cut its sovereign credit rating on the country to B-minus. The rating agency noted that sanctions could severely curtail Pakistan's access to foreign currency and financial assistance from multilateral lending agencies such as the World Bank.

Duff & Phelps Credit Rating Co. also moved to downgrade India last week, changing its outlook for the country to negative from stable.

Banking sources said they expect BankAmerica Corp. and Citicorp, the two banking companies with the biggest operations in both South Asian countries, will be hardest hit. Citicorp has about $3 billion of assets in India; BankAmerica, about $2.3 billion. Both also have hundreds of millions of dollars worth of assets in Pakistan but do not break those figures out.

The two companies, along with others such as J.P. Morgan & Co., have been developing capital markets operations in the region and are seeking to obtain government mandates for privatizing state-owned companies.

BankAmerica, for example, recently obtained a mandate to privatize the Pakistani government-owned National Development Finance Corp. and has been seeking similar mandates to privatize state-owned Pakistani banks.

"U.S. banks in India still don't even know if they can hold government bonds to meet their reserve requirements," Mr. Kleiman noted. "Pakistan is the same blank hole," he added.

Spokeswomen at both banking companies said they did not want to comment on the effect the sanctions might have until the U.S. government spells out details.

However, a Citicorp spokesman suggested that the planned opening of its eighth Indian branch, in Hyderabad, may be delayed as a result of the U.S. decision to impose sanctions.

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