The Empowered Group of Ministers (EGoM) on disinvestment, headed by Finance Minister P Chidambaram, is likely to give its approval to this effect soon, official sources said.
Under the buyback mode, the government can raise money by selling its equity in the company to the PSU itself.
"The company has a huge cash reserves. They have agreed to buy back 10 per cent of total shares at a price of 19.25 apiece from shareholders," an official said.
"The entire process of approval would be completed by Monday with the approval of the EGoM," the official said, adding that the company would go ahead with the buyback as soon as next month.
The board of NHPC has given its go-ahead for the buyback of over 123 crore shares on a proportionate basis from shareholders, the official added.
"The buyback would help improve the value of company's share in the market," the official added.
The hydro power producer has informed BSE that its board of directors has unanimously approved the buyback of up to 10 per cent of fully paid-up equity shares of Rs 10 each for an aggregate amount of nearly Rs 2,400 crore. Since the government holds 86.36 per cent stake in NHPC, buyback of shares on proportional basis would mean government getting about Rs 2,000 crore.
The company has a cash reserve of nearly Rs 3,000 crore.
Shares of NHPC closed at Rs 18.45 on the BSE on Friday, lower than the buyback price of Rs 19.25 apiece.
The government had last year included various options, including selling shares PSUs themselves to prune its stake in state-run companies. So far, no fund has been raised through the route.
In August, the Union Cabinet had deferred a proposal to sell 11.36 per cent stake in NHPC through the offer for sale (OFS) route, citing bad market conditions.
The government aims to raise Rs 40,000 crore through PSU disinvestment in the current fiscal. With seven months of the fiscal about to get over, it has managed to garner only Rs 1,300 crore through PSU stake sale.