Mayor Marion Barry yesterday vetoed legislation allowing District banks to participate in a limited interstate banking arrangement with 11 southern states because he said it doesn't include a provisions he favors to open the city to nationwide banking in two years.

Barry also objected to the measure, approved by the D.C. City Council Sept. 10, because it lacks a provision allowing major banks and money centers outside the region, such as Citicorp of New York, to enter this market sooner if they pledge to provide $100 million in local loans to encourage development.

The mayor's action followed intense lobbying on the one hand by Citicorp, which opposed the legislation without the added provisions, and local bankers who favored the legislation as a more gradual approach to opening the city to vastly expanded banking services.

Citicorp already has offered to provide $100 million in loans to small D.C. businesses and neighborhood development projects in exchange for a banking license here. The banking giant also picked up the $40,000 tab for the Barry administration's gala reception marking the start of a Chinese trade show at the Washington Convention Center.

The immediate impact of Barry's veto is to delay Sovran Financial Corp. of Norfolk's plan to acquire D.C. National Bankcorp, parent company of D.C. National Bank, and the plans of United Virginia Bankshares to buy NS&T Bankshares Inc., holding company for NS&T Bank.

A two-thirds vote of the 13-member City Council would be required to override the veto. The council voted 10 to 0 to approve the bill, but it was not known immediately whether there are enough votes to override the veto.

In approving the bill, the council rejected the "trigger" provision that would allow any bank outside the region to enter this area in two years. The council did not consider the mayor's proposal to allow banks to enter sooner if they make a substantial economic commitment to the District.

Virginia and Maryland passed laws last spring permitting interstate banking within the region.

Citicorp officials hailed the mayor's veto, while local bankers expressed dismay.

"Now that Mayor Barry has vetoed this restrictive regional banking legislation, D.C. residents have an opportunity to gain significant financial commitments in neighborhoods which are traditionally neglected by local banks," said Lucius P. Gregg, a Citicorp vice president.

Luther H. Hodges Jr., chairman of the National Bank of Washington, said he was "shocked and disappointed" by the mayor's veto. He said that interstate banking began in the region in July and "good old Washington is a day late and a dollar short."

John J. Mason, chief executive officer of NS&T Bankshares Inc., said the veto "says a great deal for Citicorp's capacity to mount an effective lobbying campaign.

"It was the most effective lobbying I've ever seen. It entailed a lot of money for parties, et cetera. You have to recognize Citicorp's tremendous lobbying effort."

Barry originally introduced the interstate banking legislation but later said he wanted amendments added.

"I think this is the first time in home rule history that a mayor has vetoed his own bill," said Council Chairman David Clarke. "I don't believe the council is philosophically opposed to national interstate banking or the early-entry notion. It was just put upon us at the last minute."

In his four-page veto message, Barry denied that his action was an "assault on the local banking community," but said it reflects what he believes to be in the best interest of District residents.

"Whether the local banking community has been unable or unwilling to participate in the revitalization of our outlying areas may be debatable," Barry said, "but the fact remains that the District and its citizens need more banking resources."

In addition to his concern that the legislation didn't allow earlier entry for outside banks, Barry said it was unacceptable because it authorized the council rather than his office to review and approve interstate banking applications.

The mayor issued his veto message at 7 p.m. after last-minute maneuvering by council members, including Charlene Drew Jarvis (D-Ward 4) and Frank Smith (D-Ward 1), to avert a veto, and intense lobbying by local bankers.

Several council members privately discussed devising a banking amendment to allow some form of early entry for banks outside the 11-state region. But the plan was scratched early yesterday when the council members and the mayor failed to reach agreement on the details.

At 11:30 a.m. Barry, accompanied by council member John Ray (D-At Large), who favored a veto, appeared on the first floor of the District Building to visit council members' offices. Some members said Barry was trying to determine whether he had enough votes to sustain a veto.

"He's not comfortable about the votes or he would not be walking the halls," said a council member who did not want to be identified.

Seven hours later, some council members were still uncertain about what action the mayor would take before his letter arrived. Smith issued a statement at 6:30 p.m. urging the mayor to veto the measure unless some compromise on the "trigger issue" was negotiated.

Jarvis said afterward that the veto was a "counterproductive" action in view of earlier efforts to reach a compromise.

"Our first concern is to protect the interests of the local economy," she said. "Some money center banks have assets in excess of $100 billion. Local banks on the other hand have total assets of $14 billion. It is our responsibility to strengthen the competitiveness of the local banking communityy, at least for a short period."

Some council members said that in considering whether to override the veto they are concerned about Citicorp's investments in South Africa. Maurice J. Cullinane, executive director of the D.C. Bankers Association, circulated a September article in The Wall Street Journal in which the chairman of Citicorp, John S. Reed, was asked whether Citicorp intends to continue doing business in the white-dominated African country. Reed was quoted as saying the "notion that now is the time to pull out is a foolish one."

Smith said that all council members are concerned about Citicorp's investments in South Africa. "In the case of Citicorp, that gives some pause to people here and may affect some people's votes" on an override, Smith said.