MUMBAI (Reuters) -State Bank of India (SBI) is classifying the loan account of insolvent Reliance Communications as fraudulent, citing alleged diversion of funds in a case dating back to 2016.

The disclosure was made by Reliance Communications in a securities filing that attached a June 23 letter from SBI detailing the reasons behind the decision by India's biggest lender.

Under Indian banking laws, once an account is reported as fraudulent, the matter is referred to enforcement agencies for criminal action and the borrower is barred from securing further finance from banks and other regulated financial institutions for an initial period of five years.

Reliance Communications disclosed in April that its total debt stood at 404 billion rupees ($4.71 billion) in March.

SBI's letter also said it would report Anil Ambani to the Reserve Bank of India, in compliance with Indian banking regulations.

Ambani, who was a director of Reliance Communications, is pursuing the matter as legally advised, a spokesperson for Reliance Communications said on Wednesday.

Lawyers for Ambani, in a letter reviewed by Reuters, asked SBI on Wednesday to withdraw the order classifying the Reliance Communications' loan account as fraudulent and to refrain from reporting their client to the RBI, saying SBI had not given him the opportunity of a personal hearing.

The bank did not respond to Ambani's communications for almost a year, Agarwal Law Associates added in the letter.

The Reliance Communications securities filing late on Tuesday said that its insolvency proceedings protect the company from any orders by any other authority and court of law. 

SBI did not immediately respond to Reuters' emailed request for comment outside business hours.

The bank's initial letter to the company said that it gave Ambani and Reliance Communications several chances to respond to the allegations but found their replies insufficient, the Reliance Communications filing showed.

($1 = 85.6880 Indian rupees)

(Additional reporting by Ananta AgarwalEditing by Mrigank Dhaniwala, Muralikumar Anantharaman and David Goodman)

By Jayshree P Upadhyay and Hritam Mukherjee