PFC and REC move ahead with proposed merger

Power Finance Corporation Limited (PFC) and REC Limited have informed the stock exchanges that they are proceeding with a proposed merger after the PFC board granted in-principle approval on February 6, 2026. In a joint filing dated February 12, 2026, the two state-owned non-banking financial companies (NBFCs) set out the rationale, structural aspects, and expected outcomes of the consolidation.

The companies stated that the merger is aimed at meeting the significant capital requirements of India’s power sector as the country advances toward its Viksit Bharat 2047 goals. Based on consolidated metrics, the combined entity would become the largest power sector financier in India. The filing noted that enhanced balance sheet strength, capital efficiencies, and operational synergies are expected to support higher funding capacity and improved credit flow across the power sector value chain.

In addition to conventional and renewable energy financing, the merged entity plans to expand into emerging technologies. These include green hydrogen, carbon capture utilisation and storage, small modular nuclear reactors, and energy storage solutions. The companies indicated that combined sector expertise and technical capabilities would enable more effective participation in these areas.

PFC and REC confirmed that the merged entity will continue to qualify as a government company under the Companies Act, 2013. The Government of India will retain control, including authority over the appointment and removal of board members.

The merger structure is under consideration. External consultants, valuation experts, and legal advisors will be appointed to facilitate a structured and compliant process. The final scheme of merger will be disclosed after receipt of necessary regulatory and statutory approvals.

The filing also addressed exposure and concentration norms. Both PFC and REC currently comply with Reserve Bank of India (RBI) exposure limits applicable to NBFCs, which are linked to Tier I capital. After the merger, single-borrower exposure limits will be calculated on the consolidated Tier I capital of the combined entity. The companies stated that, given their strong net worth, no breach of borrower exposure norms is anticipated.

On borrowing capacity, the filing cited that the aggregate Tier I capital of India’s top ten banks was approximately Rs 18 lakh crore as of March 31, 2025. The companies stated that this provides adequate headroom for additional borrowings. Current funding sources comprise domestic bank borrowings (18%), foreign currency borrowings (25%), and domestic bond borrowings (57%).

The companies also noted that since the Government of India divested its stake in REC to PFC in 2019, both entities have operated within the reduced group exposure limit of 25% under the RBI Large Exposure Framework, compared to the earlier combined limit of 40%. Post-merger, a single-entity exposure limit of 20% will apply.

PFC acquired a 52.63% stake in REC in 2019 following the government’s divestment and has since acted as REC’s holding company. The Union Budget 2026–27 proposed restructuring of the two state-owned NBFCs to improve scale and operational efficiency, leading to the current merger process.