A background paper on `Problems of Urban Cooperative Banks & Credit Societies' states that the RBI's decision to raise the limit to Rs 100 crore will destroy the aspirations of several co-op banks to achieve scheduledstatus.

Regarding the issue of licences to existing banks, the note states that several unlicensed banks have been denied licences for a long time as they could not fulfil the viability norms prescribed by the regulator. The standard was revised every time the banks achieved the desired norms, as a result "delay becomes a perpetual factor".

The paper suggests that unlicensed banks be divided into two categories -- those identified as weak due to heavy erosion and/or high overdues and those which havefailed to comply with other statutory requirements.

Banks which have "reasonable" prospects of overcoming weaknesses within a period of five years should be allowed to function with a time-bound action programme under direct guidance and control of a specially constituted RBI panel. In all other cases, banks should not be allowed to function independently and merger/amalgamation/liquidation is advisable, the note suggests.

On rehabilitation of weak banks, the note observes that there are several sick banks under rehabilitation for a long time while the number of "turnaround" cases is insignificant.

"Rehabilitation of weak banks should be the primary responsibility of the RBI," and instead of transferring it to the registrar of cooperative societies, the RBI should prepare rehabilitation schemes similar to those drawn up by the Board for Industrial & Financial Recon-struction (BIFR).