Power Finance Giants PFC and REC Move Forward with Historic Merger Plan
In a significant development for India's energy financing landscape, state-owned power sector financiers Power Finance Corporation (PFC) and REC Ltd have officially announced their intention to merge, following the government's announcement in the 2026-27 Budget. The companies made separate but identical regulatory filings to stock exchanges on Thursday, confirming their plans to create a single, large government-controlled financing institution dedicated to the electricity sector.
Creating a Financial Powerhouse for India's Energy Needs
The proposed merger aims to establish what would become India's largest power-sector financier based on consolidated metrics. According to the regulatory filings, the combined entity would benefit from a significantly stronger balance sheet, improved capital efficiency, and substantial operational synergies. This enhanced financial capacity would enable large-scale funding and better credit flow across the entire power value chain, from generation to distribution.
The merged financier is expected to support investments not only in conventional power infrastructure but also in emerging technologies that are crucial for India's energy transition. These include green hydrogen projects, carbon capture initiatives, small modular nuclear reactors, and advanced energy storage solutions. The companies emphasized that as a combined entity, they would possess stronger technical capabilities and deeper sector expertise, allowing them to capitalize on these emerging opportunities more effectively than they could as separate organizations.
Financial Stability and Regulatory Compliance
Both PFC and REC clarified that they currently operate well within the Reserve Bank of India's borrower-exposure norms. Following the merger, limits will apply to the consolidated Tier-I capital, and no breach is anticipated given their strong combined net worth. The companies' current borrowing mix consists of approximately 18% domestic bank and financial-institution borrowings, 25% foreign-currency borrowings, and 57% domestic bonds.
After the merger, a single-entity exposure cap of 20% will apply, which the companies expect to manage smoothly due to their diversified funding sources. They noted that the top ten Indian banks together have approximately ₹18 lakh crore of core capital as of March 31, 2025, and this is expected to rise further with profits. Given this substantial banking capacity and their current borrowing levels, the companies stated there is sufficient headroom to raise additional loans if required for future projects.
Merger Structure and Government Oversight
The companies revealed that the specific merger structure is still under deliberation, with external consultants, valuation experts, and legal advisers to be appointed to ensure structured, timely, and compliant execution. The entire transaction will be subject to regulatory approvals from relevant authorities.
The boards of PFC and REC had given in-principle approval on February 6 to combine the two entities while retaining the merged entity's status as a government company under the Companies Act. The merged entity will continue to remain a government company, with the Government of India retaining the right to appoint and remove board members, ensuring continued public sector oversight and alignment with national energy priorities.
Strategic Alignment with National Goals
The restructuring proposal, which was announced by the finance minister in the Budget, seeks to improve scale and efficiency among public sector non-banking financial companies and strengthen financing capacity for India's rapidly expanding power ecosystem. The companies emphasized that this consolidation aligns perfectly with India's long-term energy transition requirements and investment needs as the country works toward its ambitious Viksit Bharat 2047 development goals.
It's worth noting that PFC already holds a 52.63% equity stake in REC after acquiring it in 2019, making REC its subsidiary. This previous acquisition was described by the companies as reflecting the government's longer-term consolidation strategy in the power financing sector, with the current merger proposal representing the logical next step in creating a unified, powerful financial institution capable of supporting India's growing energy demands and transition to cleaner technologies.
