The state-run financier plans to raise the money through 10-year, deep-discount bonds and the issue is likely to see strong investor demand, the sources said.

"REC is in talks with the Central Board of Direct Taxes (CBDT) to provide some taxation benefit to investors and this will boost appetite for the issue, especially at a time when state-run companies have stopped issuing tax-free bonds," one of the sources said.

The sources requested anonymity as they are not authorised to speak to the media. REC did not immediately reply to a Reuters email seeking comment.

Deep-discount bonds are issued at a discount, generally over 20% less than their face value, and do not pay regular interest, a feature similar to zero-coupon notes that removes reinvestment risks.

Bankers expect a strong appetite for these papers even though they will be issued in the last month of the financial year, when most investors have completed their investment targets.

"Deep discount bonds are an attractive investment bet for corporate treasuries and high net worth individuals as they do not carry reinvestments and can earn decent returns as interest rates are expected to fall in coming months," said Umesh Khandelwal, chief business officer at Tipsons Group.

Traders expect the 10-year bonds to be priced 6-8 basis points lower than other securities of REC. ($1 = 82.8924 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)

By Dharamraj Dhutia