PFC-REC Merger Moves Closer to Cabinet Approval; Finance Ministry Examines Ownership Structure

The proposed merger of Power Finance Corporation (PFC) and REC Limited has moved closer to a crucial decision, with the Finance Ministry reviewing the proposal before it is placed before the Union Cabinet for approval. The government is targeting April 1, 2027, for the merger to take effect, paving the way for the creation of a power-sector financing giant with a combined loan book of approximately ₹12 lakh crore.

Power Secretary Pankaj Agarwal has indicated that inter-ministerial consultations have been completed and the proposal has been forwarded to the Finance Ministry. The next major step is approval from the Finance Minister, Nirmala Sitharaman, following which the proposal is expected to be placed before the Cabinet. The consolidation is part of the government’s broader strategy to strengthen public-sector non-banking financial companies (NBFCs), improve operational efficiency and create a larger financing institution capable of supporting India’s expanding electricity and infrastructure requirements.

Government Ownership at the Centre of Merger Plan

One of the key issues being addressed is how the government will retain at least a 51% stake in the merged entity. The Centre currently holds approximately 55.99% of PFC, while PFC owns a 52.63% stake in REC.

Following the merger, the government’s effective ownership could fall below the threshold required to preserve the merged company’s status as a government company. To address this, the government is considering issuing preference shares to itself. This option is being examined as an alternative to fresh equity issuance or recapitalisation bonds.

Preference shares could provide a means of maintaining the government’s minimum ownership requirement without relying on the same structure as a conventional fresh equity infusion. However, the final amount, terms and financial implications of the proposed preference capital have yet to be confirmed. Retaining government control is a critical condition of the merger scheme.

PFC and REC Boards Have Already Approved Merger Scheme

The boards of both companies approved the merger scheme on June 28, 2026, under which REC will be amalgamated with PFC. The proposed arrangement provides for the transfer of REC’s assets and liabilities to PFC, with REC ceasing to exist as a separate corporate entity once the merger becomes effective.

Under the approved share-exchange ratio, eligible REC shareholders will receive 88 equity shares of PFC for every 100 equity shares of REC held by them, subject to the terms of the scheme and the applicable record date.

The merger is being undertaken under Sections 230–232 of the Companies Act, 2013. In addition to government approval, the scheme requires the necessary statutory and regulatory clearances, along with the requisite approvals and consents from shareholders and creditors.

The Reserve Bank of India issued a no-objection certificate on October 15, followed by observation letters from the National Stock Exchange and the BSE on October 19. These developments have advanced the approval process, although the merger is not yet complete.

Combined Loan Book of ₹11.60 Lakh Crore

The proposed merger will bring together two of India’s largest government-owned power-sector financing institutions.

As of June 30, 2026, PFC had a standalone loan book of approximately ₹5.70 lakh crore, while REC’s standalone loan book stood at around ₹5.90 lakh crore. Their combined standalone loan book of approximately ₹11.60 lakh crore underscores the scale of the proposed institution.

Both companies finance projects across the electricity value chain, including power generation, transmission and distribution. Their lending portfolios also support investments in renewable energy and other emerging infrastructure segments.

REC has expanded its financing activities into areas such as electric mobility, battery storage and green hydrogen, while PFC remains a major source of funding for India’s power infrastructure.

The merger is expected to create a larger lending platform with greater capacity to finance capital-intensive projects. However, the ultimate benefits will depend on how effectively the combined institution manages its balance sheet, lending exposure, operational integration and funding requirements.

Budget Announcement Translates into Consolidation Drive

The restructuring proposal follows Finance Minister Nirmala Sitharaman’s announcement in the Union Budget for 2026–27. The government had proposed restructuring PFC and REC to achieve greater scale and improve efficiency among public-sector NBFCs.

PFC acquired the government’s 52.63% stake in REC in March 2019 for ₹14,500 crore, making REC its subsidiary. The proposed merger represents a further step towards consolidating the two institutions, whose lending operations increasingly overlap across the power sector.

For the government, the consolidation offers an opportunity to bring the two financing businesses under a single corporate structure. For the power sector, a larger institution could potentially support bigger projects and provide financing across a broader range of electricity infrastructure requirements.

At the same time, the merged entity will need to manage concentration risks, maintain prudent lending standards and ensure that its increased size translates into improved financial efficiency.

April 1, 2027, Target Hinges on Final Approvals

The government’s target is to make the merger effective from April 1, 2027. The immediate milestone is the Finance Ministry’s clearance, followed by consideration by the Union Cabinet.

The proposed ownership structure will remain a key element of the final arrangement, particularly the requirement that the government retain at least 51% ownership and control so that the merged entity continues to qualify as a government company.

The coming weeks are therefore likely to be crucial for determining the final approval timeline and the mechanism through which the government’s minimum stake will be maintained.

If completed as planned, the merger will mark a major restructuring of India’s public-sector power financing landscape, combining PFC and REC into a single institution with a loan book of nearly ₹12 lakh crore. Its success will ultimately be measured by its ability to finance India’s growing energy needs while maintaining financial discipline and operational efficiency.