Change drupal 7 way of hashing password? Hi I am trying to migrate users from a legacy custom CMS site that used "sha256" technique to hash passwords to drupal 7 platform. 

Upon further reading I came to know that drupal 7 stores passwords as salted and sha512 hash. 

How can I change drupal 7 way of storing password hashes/ authentication of users to sha256 technique? Any direction would be helpful.
This is entirely possible but requires custom code for your alternative solution. For an example see:
https://www.drupal.org/node/1109374#comment-4711644

From the linked thread you may simply:

(1) Create a new module, I called mine projectname_legacy_auth

/**
 * supply alternate authentication schemes
 */
variable_set('password_inc', drupal_get_path('module', 'projectname_legacy_auth') . '/projectname_legacy_auth_password.inc');

function projectname_legacy_auth_uninstall() {
  // put it back the way it was...
  variable_set('password_inc', 'includes/password.inc');
}

function projectname_legacy_auth_disable() {
  // put it back the way it was...
  variable_set('password_inc', 'includes/password.inc');
}            


(2) add the authentication mechanisms you need to projectname_legacy_auth_password.inc'.
In this case, it's md5().

/**
 * simplified example for md5, no salting
 */
function user_check_password($password, $account) {
  if ($account-&gt;pass == md5($password)) {
    return TRUE;
  }
  return FALSE;
}

/**
 * Simplified example for md5 hashes, no salting
 */
function user_hash_password($password, $count_log2 = 0) {
  return md5($password);
}

/**
 * this is probably a bad idea :-)
 */
function user_needs_new_hash($account) {
  return FALSE;
}