Neha
This is what I know, unless anyone here suggests otherwise.
As we know that SiteMinder uses the DD drivers to make ODBC calls. Enforcing some form of encryption at DD layer on SiteMinder side, it's never been tested before. Hence it is not supported. Another thing to note, is if something like this is possible, we need to ensure that the encryption occurs only for that particular user directory object and not across all ODBC stores which DD in SiteMinder services.
I don't think SiteMinder in it current capability could utilize SQLNET encryption. The way SiteMinder works is, it just hands over the 'credential' as is to a user store. It is the job of the user store to take the credential and apply any encryption algorithm before doing a password match. For e.g. SiteMinder would just call a Stored Procedure on the ODBC user store. It is the Stored Procedure's job to use the SQLNET encryption before further processing.
Regards
Hubert