The finance ministry and the RBI are investigating allegations of money laundering practices at top private sector lenders ICICI Bank, HDFC Bank and Axis Bank.
Goldman Sachs, meanwhile, said the allegations, if proven, could slow growth for private sector lenders in India.
The probe by the Reserve Bank of India and the government follows an investigation by an independent journalist, who said on Thursday that he had video footage of the lenders' branch employees suggesting to an undercover reporter methods to launder money.
"All government agencies and regulators are working together to probe charges," Rajiv Takru, secretary of financial services, told a television channel on Friday.
ICICI Bank Ltd, HDFC Bank Ltd, and Axis Bank Ltd each said on Thursday they were investigating the allegations but defended their internal controls aimed at preventing money laundering.
"The RBI is collecting information, and the RBI has been in touch with the banks. At the moment, that's all I can say," Urjit Patel, deputy governor of the RBI, told reporters late on Thursday.
Shares of the three lenders fell on Friday, with ICICI Bank down 4 per cent, HDFC Bank down 1.7 percent, and Axis Bank down 0.9 per cent.
Shares of the three lenders fell briefly on Thursday but recovered to end the session with gains following lower-than-expected core inflation data.
"We think these developments, if they were to be true, could potentially lead to slower growth across private banks' deposits and businesses as RBI may then direct banks to focus on improving risk management rather than expanding," Goldman Sachs wrote in a note late on Thursday.
"It is difficult to ascertain the extent of the slowdown till more clarity on these developments is provided by the banks," it added.
Copyright Thomson Reuters 2013