The Australian Securities and Investments Commission (ASIC) will take Westpac to Federal Court over its responsible lending practices.

The watchdog said during December 2011 and March 2015, Westpac failed to properly assess whether borrowers could meet their repayment obligations before signing home loan contracts.

ASIC alleges Westpac used a benchmark instead of actual expenses declared by borrowers in assessing their ability to repay the loan, approved loans even when a borrower's ability to repay would leave them in deficit, and for home loans with an interest-only period, failed to have regard to the higher repayments at the end of the interest-only period.

According to the filing ASIC submitted to court, instead of using the expenses that borrowers gave to Westpac, the bank used a benchmark for expenses based on ABS data and scaled for where the person lived, how many dependents they had and their marital status, but did not take into account their income.

Westpac said it would defend the penalty proceedings, and said all seven loan applications ASIC references in its proceedings were currently meeting or ahead in repayments.

"It is not in the bank's or customers' interests to put people into loans that they cannot afford to repay. It goes hand in hand that we have robust credit approval processes while helping customers purchase their home," Westpac's George Frazis said in a statement.

Mr Frazis said the bank considers specific circumstances including income and expenditure, previous repayments history, and overall customer relationship.

Westpac said it does use benchmarks including the Household Expenditure Measure published by the Melbourne Institute for Social Economic Research as part of its credit approval process but disputes ASIC's claim the bank relied solely on that criteria.

"In our experience this survey is a useful input into our loan assessment process, in combination with our understanding of customers' circumstances," Mr Frazis said.

"Importantly, interest-only mortgages were assessed in the same way as a standard principal and interest loan, and did not increase how much a customer could borrow."

Consumers are protected under the National Credit Act which stipulates that credit providers make "reasonable inquiries" about a borrower's financial situation and assess whether a loan contract is suitable.

The first hearing will be held on March 21 at the Federal Court in Sydney.