* To invite bids from bankers, advisers this week
* Govt targets share auction by August or September
* Aims to raise $7.4 bln in all stake sales in 2013/14 (Adds details, context from paragraph 4)
By Prashant Mehra
MUMBAI, May 9 (Reuters) - The Indian government has firmed plans to sell a 10 percent stake in Coal India Ltd through a share auction and will invite bids this week from bankers and advisers to manage it, two sources involved with the matter said.
India's Department of Disinvestment (DoD) aims to launch the share sale by August or September, said the sources, who declined to be identified.
At the current share price, the stake would be worth $3.6 billion, although the shares are likely to be offered at some discount to the market price. The Indian government owns 90 percent of Coal India, the world's largest coal miner by output.
The sale is crucial to New Delhi's efforts to raise 400 billion rupees ($7.4 billion) this fiscal year through sales of stakes in state companies to cut its fiscal deficit.
By comparison, it raised $4.4 billion in 2012/13 from stake sales.
The government's divestment plans include stakes in top state refiner Indian Oil Corp, power equipment maker Bharat Heavy Electricals Ltd and a follow-on public offer in Engineers India Ltd.
Bankers to manage the Engineers India sale are to be short-listed later this month.
Government officials had considered divesting part of the Coal India stake through a share buyback by the company. It decided against the proposal, however, because stock market guidelines bar companies from fresh equity issues within six months of completing a share buyback, the sources said.
The government expects to appoint merchant bankers and advisers for the Coal India offer by early June and start overseas investor roadshows later that month, one of the sources said.
Coal India debuted on the stock markets in 2010 after a record $3.4 billion initial public offering.
The stock, despite being seen as a proxy for rising energy demand in Asia's third-largest economy, has underperformed the main stock index due to worries over the company's inability to make big production gains after delays in approvals for some of its projects.
On Thursday, Coal India shares closed down 1.1 percent in a weak Mumbai market. ($1 = 54.13 rupees) (Editing by Jane Baird)