Budget 2026 Unveils Restructuring Plan for Power Sector Financial Giants
In a significant move aimed at bolstering India's financial infrastructure, Union Finance Minister Nirmala Sitharaman announced during her Budget 2026-27 speech that the government will restructure two key power sector-focused financial institutions: Power Finance Corporation Ltd (PFC) and REC Ltd. This strategic initiative forms part of the broader vision to strengthen public-sector financial entities and align them with the ambitious goals of 'Viksit Bharat'.
Aligning NBFCs with National Development Objectives
Presenting the Union Budget in Parliament, Sitharaman outlined a clear roadmap for non-banking financial companies (NBFCs) to enhance their contribution to national development. The vision for NBFCs for 'Viksit Bharat' has been outlined for clear targets for credit disbursements and technology adoption in order to scale and improve efficiency in the public sector NBFCs, she stated. As a first step, it is proposed to restructure PFC and REC, the Finance Minister declared, signaling the government's commitment to modernizing these critical financial institutions.
Strategic Importance in Energy Security and Transition
The restructuring announcement comes at a crucial juncture when both PFC and REC are playing pivotal roles in India's energy security framework and the nation's comprehensive energy transition roadmap. These institutions have been instrumental in financing power projects across the country, and their enhanced capabilities are expected to further accelerate India's progress toward sustainable energy solutions.
Suddhasatta Kundu, Director for Power Sector Advisory at Nangia & Co. and Llp, emphasized the broader implications of this move. Restructuring of PFC and REC will improve the scale and efficiency of these public-sector NBFCs as part of a broader push to strengthen public-sector financial institutions, he explained. Kundu further highlighted their expanding role beyond traditional power sector financing: With India targeting net zero by 2070, sustainable development across sectors will be required, and PFC and REC, both with their infrastructure financing experience, will be key to financing growth in non-power sectors like metro, bridges, and ports, which these institutions are already venturing into.
Financial Performance and Market Response
The announcement follows strong financial performances by both institutions in recent quarters. For the second quarter of 2025-26, PFC reported a 2% increase in net profit, reaching ₹4,462 crore compared to ₹4,370 crore in the same period a year earlier. The company's total income demonstrated robust growth, rising 11.7% year-on-year to ₹14,756 crore during this period.
Similarly, REC Ltd posted impressive results for Q2 FY26, with net profit increasing over 9% year-on-year to ₹4,414.93 crore, driven by higher income. The institution's total revenue in the second quarter grew 10.62% to ₹15,162.38 crore from ₹13,706.31 crore in the corresponding quarter of the previous fiscal year.
Market participants responded positively to the restructuring announcement. At 12:17 PM on the trading day following the budget speech, shares of PFC on the Bombay Stock Exchange were trading at ₹380.50, reflecting a 0.30% increase from their previous closing price. Shares of REC Ltd showed even stronger momentum, trading at ₹366.15 with a 0.49% gain from the previous session's close.
Broader Implications for India's Financial Ecosystem
The restructuring of PFC and REC represents more than just an organizational realignment; it signifies a strategic shift in how India approaches infrastructure financing. By enhancing the capabilities of these public-sector NBFCs, the government aims to create more efficient channels for credit disbursement that can support not only traditional power projects but also emerging infrastructure needs across various sectors.
This move aligns with the government's commitment to strengthening public financial institutions while simultaneously supporting India's ambitious climate goals and infrastructure development targets. The restructuring is expected to enable these institutions to adopt more advanced technologies, streamline their operations, and expand their financing portfolios to include a wider range of sustainable infrastructure projects.
As India progresses toward its net-zero emissions target by 2070, the enhanced capabilities of PFC and REC will be crucial in mobilizing the substantial financial resources required for this transition. Their restructured operations are anticipated to facilitate greater investment in renewable energy projects, energy efficiency initiatives, and sustainable urban infrastructure development across the nation.
