SYDNEY, July 1 (Reuters) - Australia's Big Four lenders are...

SYDNEY, July 1 (Reuters) - Australia's Big Four lenders are pushing back on the regulator's plan to require banks make detailed credit checks on borrowers to estimate loan affordability instead of relying on indices, with the No.2 lender saying such checks are not feasible.

Financial regulators are reviewing the country's responsible lending rules in the aftermath of a sector inquiry into misconduct last year that heard banks were underestimating borrowers' spending and in some cases approving loans to people that could not repay them.

Rather than making intensive checks of borrowers' expenses, Australian banks rely heavily on an index measure that estimates the minimum living expenses of the average Australian, based on income levels.

The Royal Commission recommended regulators should ensure its use was not a replacement for thorough customer checks in order to comply with responsible lending rules.

"Westpac does not believe that there is significant utility in requiring the verification of living expenses," Westpac Banking Corp (WBC) , the country's second largest, said in its submission to the Australian Securities and Investment Commission, published on Monday.

The Sydney-based lender is defending a lawsuit brought by customers who alleged the bank had given them loans they could not afford. It had earlier agreed to pay a record A$35 million ($24.48 million) fine for wrongly approving thousands of mortgages.

"Accurately verifying basic and discretionary living expenses using transactional account data is currently not feasible and in Westpac’s experience, would be of limited value," the lender added in its submission.

In their submissions, the other three large banks - Commonwealth Bank (CBA) (CBA) , National Australia Bank (NAB) and Australia and New Zealand Banking (ANZ) - said the benchmark was a key part of their application processes, with CBA, the largest, vowing to reduce its reliance on it.

The banks also called on the regulator to provide guidance on how banking and transactional data could be used for verification purposes. ($1 = 1.4298 Australian dollars)