* Selects seven banks including Goldman, Credit Suisse
* Unions vow to step up protest against divestment (Recasts lead, adds union comments, details, background)
Aug 29 (Reuters) - India has selected seven banks to manage the sale of a stake in Coal India which could raise $1.2 billion, drawing a vow from unions to step up opposition to the disposal.
The divestment is part of a state sell-off programme to raise 400 billion rupees ($5.87 billion) in the fiscal year ending next March to plug a yawning current account deficit and stave off a threatened ratings downgrade.
India, which is also battling growing fiscal pressures and a slowing economy, may launch the sale in October, said two sources with direct knowledge of the matter.
The sources declined to be named as they were not authorised to speak ahead of a public announcement. A spokesman for Coal India could not immediately be reached for a comment.
The sources said the government has hired Goldman Sachs , Bank of America Merrill Lynch, Deutsche Bank , Credit Suisse and Indian investment banks SBI Capital, JM Financial and Kotak Mahindra Capital for the sale of a further 5 percent stake in the world's largest coal miner.
The five trade unions representing Coal India staff plan to strike for three days from Sept. 23 to protest the share sale and to back other demands.
"This decision will further exacerbate the situation," Jibon Roy, general secretary of the All India Coal Workers' Federation told Reuters.
"The government has to withdraw this move," he said. "Whatever be the decision that the government takes, workers will not allow privatisation."
The government raised $3.4 billion through an initial public offering of 10 percent of Coal India in 2010. If the latest proposed sale goes through, its stake will fall to 85 percent.
The company's trade unions have said the government pledged not to reduce its stake below 90 percent.
Coal India shares ended down 1.4 percent on Thursday in the main Mumbai market that rose 2.4 percent. The stock is down nearly one third this year, underperforming the broader market that has fallen about 8 percent.
$1 = 68.1450 Indian rupees Reporting by Sumeet Chatterjee in Mumbai and Malini Menon in New Delhi; Editing by David Cowell