"For BHEL divestment, we are considering the possibility of a block deal with state financial institutions," a senior Finance Ministry official said. State financial institutions include LIC and PSU banks.
At the current market price of Rs 172.85 apiece, the 5 per cent stake sale would fetch about Rs 2,100 crore to the exchequer.
The Department of Heavy Industries, which is the administrative ministry of the company, has for long opposed the proposed disinvestment in state-run BHEL, citing unfavourable market conditions.
It wanted the issue not to look like a "distress sale" but rather one that would reap "good value".
The Finance Ministry has already laid out a roadmap for disinvestment in the remaining days of the current financial year that ends in March 31. It includes stake sales in major PSUs such as Engineers India, BHEL and Hindustan Aeronautics.
"As far as BHEL stake sale is concerned, we have ruled out going to the market for 5 per cent divestment because we feel that market conditions are not suitable for the moment for such a valuable company to be sold in the open market," Heavy Industries Minister Praful Patel said last week.
In August 2011, the Cabinet had cleared selling government's 5 per cent stake, or over 12.23 crore shares, in BHEL through a follow-on public offer (FPO). The government holds a 67.72 per cent stake in the Navratna company.
However, market conditions led to a delay in the issue and the company in April 2012 withdrew the draft prospectus filed with market regulator Securities and Exchange Board of India (Sebi).
For the July-September quarter, BHEL reported a 64 per cent fall in net profit at Rs 456 crore. It was the fifth straight quarterly drop in profit of the PSU mainly due to slowdown in sales.
The company's order book stood at about Rs 1.02 lakh crore at the end of September 2013.
The government in July 2011 had appointed four merchant bankers - Morgan Stanley, DSP Merrill Lynch (Bank of America), ICICI Securities and Kotak Mahindra Capital - to manage Bhel's follow-on public offer.
The government plans to garner Rs 40,000 crore through disinvestment in the current fiscal. So far it has managed to raise about Rs 3,000 crore through PSU stake sales.