PFC–REC Merger | Will Become the Largest NBFC of the Country
REC, PFC Boards Give In-Principle Nod for Merger; Merged Entity to Remain Government Company
The proposed merger between Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) marks a defining moment in India’s financial and power sector landscape. Backed by strong policy intent, Cabinet-level support, and a clear strategic vision from the Government of India, this consolidation is set to create the largest Non-Banking Financial Company (NBFC) in the country, fundamentally reshaping the structure and scale of public sector financial institutions.
A Merger Rooted in Policy Vision
The foundation of the PFC–REC merger lies in the Government’s broader agenda of creating strong, scalable, and efficient public sector financial institutions. In February 2026, the Hon’ble Finance Minister, while presenting the Union Budget 2026–27, outlined a vision for NBFCs aligned with the goals of Viksit Bharat. The budget speech clearly emphasized the need for restructuring public sector NBFCs to achieve scale, enhance efficiency, improve credit delivery, and accelerate technology adoption.
As a first concrete step in this direction, the restructuring of Power Finance Corporation and Rural Electrification Corporation was formally proposed. This announcement provided the policy framework and strategic direction for what is now shaping into one of the most significant mergers in India’s financial services space.
From Acquisition to Integration
Board-Level Approvals and Institutional Alignment
On February 6, 2026, the Boards of Directors of both PFC and REC formally took note of the Union Budget announcement and accorded their in-principle approval for restructuring through a merger. Importantly, both Boards emphasized that the merged entity will continue to remain a “Government Company” under the Companies Act, 2013 and all other applicable laws.
This ensures continuity of public ownership, policy alignment, and sovereign backing, while enabling the merged institution to function with enhanced scale and institutional strength. The detailed merger scheme is to be formulated and shared after obtaining all requisite regulatory and statutory approvals.
Creating India’s Largest NBFC
The merger of PFC and REC will result in the formation of the largest NBFC in the country, in terms of asset size, balance sheet strength, lending capacity, and sectoral influence. Both institutions are already dominant players in power sector financing, infrastructure lending, and long-term project finance. Their consolidation will create an unmatched financial powerhouse in the NBFC space.
This scale advantage will significantly enhance the ability of the merged entity to:
- Mobilize low-cost capital
- Support large infrastructure and energy projects
- Expand long-term financing capacity
- Improve operational efficiencies
- Strengthen risk management frameworks
- Accelerate digital and technological adoption
Strategic Impact on the Power and Infrastructure Sectors
PFC and REC have historically played a critical role in financing India’s power sector, rural electrification, transmission infrastructure, renewable energy, and distribution reforms. A unified institution will provide integrated financing solutions across the entire power value chain—from generation and transmission to distribution and clean energy transition.
The merger will also improve coordination, eliminate duplication of efforts, and streamline project appraisal and financing processes. This will lead to faster execution of projects, improved capital deployment, and better outcomes for infrastructure development.
Strengthening Public Sector NBFCs
Beyond the power sector, the PFC–REC merger represents a new model for restructuring public sector NBFCs in India. Instead of fragmented institutions operating in parallel, the focus is shifting towards building large, globally competitive, professionally managed financial entities with strong governance and balance sheets.
This approach aligns with international best practices, where scale, efficiency, and institutional strength are critical to long-term financial sustainability and global competitiveness.
A Landmark Financial Sector Reform
The Boards of Directors of REC Limited and Power Finance Corporation Limited (PFC) have accorded in-principle approval to proceed with a proposed merger of the two public sector non-banking financial companies (NBFCs), marking a major structural reform in India’s power sector financing ecosystem. The move follows the announcement made in the Union Budget 2026–27, which outlined the government’s vision to enhance scale, efficiency, and institutional strength in public sector financial entities.
In her Budget speech, the Hon’ble Finance Minister underlined the strategic role of NBFCs in achieving the goals of Viksit Bharat, with a strong focus on expanded credit disbursement, digital transformation, and technology-driven governance. She stated that, as a first step toward achieving scale and operational efficiency in public sector NBFCs, the restructuring of Power Finance Corporation and Rural Electrification Corporation has been proposed. The merger is expected to create a stronger, more integrated financial institution capable of supporting India’s growing power and infrastructure financing requirements.
On 6 February 2026, the Boards of PFC and REC formally noted that the proposed restructuring will involve the formulation of a comprehensive merger scheme in accordance with applicable laws, regulatory frameworks, and statutory requirements. This detailed scheme will outline the legal structure, financial integration, governance architecture, and operational alignment of the two entities. Once finalized, the merger proposal will be placed before the relevant regulatory and statutory authorities for necessary approvals, including sectoral regulators and the Government of India.
In their regulatory filings, both REC and PFC have clearly stated that the merged entity will continue to remain classified as a “Government Company” under the provisions of the Companies Act, 2013. This ensures continued public sector character, sovereign backing, and government oversight, preserving stakeholder confidence and institutional stability. This classification also provides continuity in policy alignment, regulatory treatment, and strategic direction for national development priorities.
The merger is expected to bring significant benefits, including operational synergies, improved capital efficiency, stronger balance sheet capacity, reduced duplication of functions, and enhanced ability to fund large-scale energy transition projects, renewable energy expansion, grid modernisation, and rural electrification initiatives. A unified institution is also likely to improve risk management, project appraisal standards, and long-term financing capabilities across the power sector value chain.
Currently, PFC holds a majority stake of 52.63% in REC, following the acquisition of the Government of India’s shareholding in REC in 2019. This existing ownership structure is expected to simplify the merger process and facilitate smoother institutional integration.
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