* FY20 cash earnings fall 62% to A$2.61 bln

* Reinstates final dividend A$0.31 per share, down 61% from FY19

* Underwritten dividend reinvestment plan dilutes shareholders

SYDNEY, Nov 2 (Reuters) - Westpac Banking Corp said on Monday it would resume paying dividends as it reported a 62% plunge in cash earnings due to write-downs, lower margins and a record fine over a money-laundering case.

Australia's second-largest bank, which was the only one of the Big Four that dominate the Australian system to stop shareholder payouts earlier this year, said it would pay investors the maximum dividend allowed by the regulator in the second half.

Citigroup will underwrite a dividend reinvestment scheme, where the payment, 61% lower than in 2019, will be made in shares rather than cash, safeguarding its capital but diluting shareholders who do not participate in the scheme.

Westpac reported cash earnings of A$2.61 billion ($1.8 billion) for the year ended Sept. 30, 62% lower than a year ago, hurt by A$3.18 billion in impairment charges taken due to a sharp increase in stressed loans and the economic impact of the COVID-19 pandemic.

The results were also hit by a record $1.3 billion fine to settle a lawsuit accusing Westpac of allowing millions of suspicious payments, including some enabling child exploiters.

The settlement ended a difficult chapter for Australia's oldest bank, which has seen it lose about a third of its value since the lawsuit was announced in November last year.

The coronavirus pandemic's damage to economic growth triggered Westpac's decision to sell its wealth management, insurance and banking business in Fiji and Papua New Guinea.

Westpac, which had elected not to pay an interim dividend earlier this year, declared a 31 Australian cents-per-share final dividend, equivalent to 49% of statutory earnings for the half year, the maximum allowed by the banking regulator.

Westpac expects to rectify issues with its slow credit approval processes for mortgages, which has caused the bank to lose market share to its peers.

"We are addressing the issues that have impacted performance in our mortgage book and expect to see improvement start to flow in 2021," Chief Executive Peter King said. ($1 = 1.4251 Australian dollars) (Reporting by Paulina Duran in Sydney and Shashwat Awasthi and Nikhil Kurian Nainan in Bengaluru; Editing by Peter Cooney and Stephen Coates)