The offer price was higher than the 30 billion rupees NTPC had been expecting when it asked for expressions of interest in NTPC Green Energy (NGEL) last year and was 78% above the second-highest bidder. It values the NGEL at $2.3 billion.

NTPC and Petronas did not immediately respond to requests for comment. The sources declined to be named as the deal is still being finalised.

The deal was the first time an Indian state-run company has offered a stake in a renewable energy arm and comes as the country's renewables sector is attracting increasing foreign investment.

Renewables are among the country's top five industries for overseas funds this fiscal year, taking a 5% share of all inflows from April to September 2022 against 3.3% in the same period a year earlier, data from India's commerce ministry showed.

Petronas outbid other local firms for the stake with an offer of 27.52 rupees per share, one government official, an industry source and a banker said. The second-highest bidder, REC Ltd, offered 15.47 rupees per share, while Indraprastha Gas Ltd (IGL) placed a bid of 6.67 rupees per share, the banker said.

REC and IGL were also not immediately available for comment.

NTPC plans to use the proceeds from the sale to expand its non-fossil businesses. The company has earmarked investments of more than $30 billion in the next 10 years to raise the share of non-fossil energy in its portfolio to 45% from the present 9.41%.

The company has committed to adding 60 gigawatts of renewable energy by 2032 on a total group capacity of 130 gigawatts by that date.

NGEL will drive the parent company's non-fossil businesses.

India has set a goal to become net-zero by 2070 and has committed to have 50% of its installed electric power capacity from non-fossil fuel-based energy by 2030.

The country targets 500 gigawatts of renewable energy generation by 2030. Renewable energy sources including wind, hydro and biomass, constitute 30% of the country's present installed capacity of 412 gigawatts.

Earlier this month, the CEO of Petronas' clean energy arm told Reuters that India and Australia are its key markets for growth and it expects to tap more financing to meet its ambitious targets.

The Petronas transaction needs to be approved by the federal government.

($1 = 82.6800 Indian rupees)

(Reporting by Sarita Chaganti Singh; Editing by Sharon Singleton)

By Sarita Chaganti Singh