The country's largest lender, State Bank of India has increased the minimum income requirements for its car loan borrowers by more than double the amount which was previously required.

From now on, SBI will sanction car loans only to those borrowers who have an annual income of at least Rs. 2.5 lakh, which amounts to Rs. 21,000 per month. Earlier, its minimum income requirement for car loan borrowers was Rs. 1 lakh annually or Rs. 8,300 per month.

The public sector bank has been promoting its seven year car loan scheme, which has a monthly EMI of Rs. 1,765. Following the launch of the product, the bank was worried that the product would attract even those who could not afford a car. Recently, SBI hiked its car loan interest rates to 12 percent, an increase of 75 bps.

The minimum income requirements have been increased to discourage bottom of the car buyer pyramid customers from availing this loan. SBI was concerned that advancing loans to these customers would have a bad impact on its defaults list.

Talking on the matter, a senior official of SBI said, "We have noticed some delinquencies that have happened in the last six months. So we are taking this proactive step." He further added that customers default more often on auto loans segments because, "The first reaction is to default on auto loans as the interest rates are much lower than personal loans."