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India: The strains of success

In their desire to get a head start over each other in India, Wall Street investment banks have forged joint ventures with local partners. Three US banks ­ JP Morgan, Merrill Lynch and Goldman Sachs ­ have adopted this strategy. Surprisingly, all three have agreed to remain minority shareholders in the ventures even though the law permits them a majority holding. Pressures may be building, though, for the US banks to buy out their local partners.

"It's not easy to find an ideal partner in joint ventures," says Charles Alexander, deputy managing director of ICICI Securities (I-sec), in which JP Morgan now has a 40% holding. However, in 1992 when Narayanan Vaghul, head of ICICI, India's second-largest financial institution, came to New York to sound out JP Morgan top brass on a joint venture, the Wall Street house did a quick rethink. India had just launched its market reforms under prime minister PV Narasimha Rao and was on the verge of opening up cross-border investment. Here was a chance to team up with a strong local partner ­ one of the largest providers of long-term credit to Indian companies and with a strong connection with the government.

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