This will help in avoiding further non-performing assets, or bad loans, because some of these borrowers are under stress, sources added.

The Finance Ministry has asked banks to identify such borrowers and encourage them to approach the stock market and raise funds.

These companies can also raise funds through private placement and unlock bank funds.

The Finance Ministry has also asked banks to explore the possibility of raising funds through public offers.

As part of the road map for raising capital over a period of five years to meet Basel III norms, banks can bring down the government's stake to 58 per cent, sources said.

While the government has prescribed a minimum stake of 58 per cent in state-owned banks, the holding can be brought down to 51 per cent on a case-to-case basis with cabinet approval, sources added.

In case State Bank of India and Punjab National Bank 2.49 percent go for a public offer, the government's stake would come down to less than 58 per cent, the sources added.

During the meeting, it was reiterated that banks should act tough in case of wilful defaulters.

Options including change of management of defaulting companies and financing of acquisition of bad assets by strong companies were discussed.

Besides, the Finance Ministry is also considering having separate statutes to deal with high-value wilful defaulters.

Banks can be allowed to raise funds through long-term instruments to finance infrastructure. According to sources, the government is considering incentives for such instruments and is in talks with the RBI.