The Financial Conduct Authority (FCA) has fined Canara Bank £896,000 and banned it from accepting deposits for 147 days for failing to maintain proper anti-money laundering systems for three and a half years.
Canara Bank is owned by the government of India.
It has hundreds of branches in India, as well as operations in London, New York and Hong Kong.
The FCA found that between November 2012 and January 2016, Canara Bank failed in its obligation to have adequate anti-money laundering controls, despite the bank having been warned that its existing processes were not adequate.
The regulator found Canara failed to maintain controls to manage the risk of money laundering.
These failures were identified as being systemic and affected almost all levels of its business and governance structure including the senior management, and governance functions.
Canara co-operated with the investigation and qualified for a 30 per cent discount to the fine.
The regulator is now satisfied that the bank is compliant.
Mark Steward, executive director of enforcement and market oversight at the FCA said: "Financial crime and money laundering failures are areas of focussed priority for us.
"Canara was warned its money laundering controls were inadequate and so its failure to remediate them properly is at the more serious end of the range of sanctions.”