The boards of Power Finance Corporation (PFC) and REC Ltd approved a merger scheme on June 28, 2026, to absorb REC into PFC under Sections 230 to 232 of the Companies Act, 2013. The combined entity will have an aggregate loan book exceeding Rs 11 lakh crore, making it India’s largest power sector financing institution. The merger is the first concrete step in the government’s broader plan to restructure public sector non-banking financial companies (NBFCs) for greater scale and efficiency, as announced in the Union Budget 2026-27.
What Is the PFC-REC Merger?
The merger involves the absorption of REC Ltd into Power Finance Corporation (PFC) through a scheme of amalgamation under the Companies Act, 2013. REC is currently a subsidiary of PFC, which holds a 52.63% stake in the company. Under the approved scheme, all assets, liabilities, and undertakings of REC will be transferred to PFC, and REC will stand dissolved without going through liquidation.
The merger is structured as a share swap arrangement with no cash consideration involved. REC shareholders will receive 88 equity shares of PFC (face value Rs 10 each) for every 100 equity shares of REC (face value Rs 10 each) they hold. This ratio was determined through a joint valuation by independent valuers and backed by fairness opinions from leading investment banks.
Post-merger, PFC will continue to remain a Government Company under the Companies Act, 2013, with the Government of India retaining majority voting rights and management control, either directly or indirectly.
PFC and REC at a Glance
PFC and REC are two of India’s largest public sector NBFCs focused exclusively on financing the power sector. Both operate under the administrative control of the Ministry of Power.
| Particulars | PFC | REC |
|---|---|---|
| Established | 1986 | 1969 |
| Headquarters | New Delhi | New Delhi / Gurugram |
| Status | Maharatna CPSE | Maharatna CPSE |
| Nodal Ministry | Ministry of Power | Ministry of Power |
| Standalone Net Worth (FY26) | Rs 1,02,532 crore | Rs 84,290 crore |
| Consolidated Net Worth (FY26) | Rs 1,73,441 crore | Rs 85,054 crore |
| Consolidated Turnover (FY26) | Rs 1,15,444 crore | Rs 59,584 crore |
| Focus Area | Generation, transmission, distribution, renewable energy | Rural electrification, distribution, transmission, renewable energy |
PFC was incorporated in July 1986 and was conferred Maharatna status in October 2021. It was classified as an Infrastructure Finance Company (IFC) by the RBI in July 2010, a category that allows specialized long-term debt financing for infrastructure projects. PFC is the largest NBFC in India by net worth.
REC Ltd, formerly the Rural Electrification Corporation Limited, was incorporated in July 1969 with the original mandate of financing rural electrification schemes. It was also elevated to Maharatna status and has since expanded beyond rural electrification to finance power generation, transmission, distribution, and non-power infrastructure such as airports, metro, railways, ports, and bridges.
Background of the Merger
The merger did not happen overnight. It is the culmination of a process that began in 2019 when PFC acquired the Government of India’s entire 52.63% stake in REC for Rs 14,500 crore, following an in-principle approval from the Cabinet Committee on Economic Affairs (CCEA) in December 2018. This made REC a subsidiary of PFC, and the two entities have since operated as holding company and subsidiary.
The idea of a full merger gained formal momentum in February 2026, when Finance Minister Nirmala Sitharaman announced in the Union Budget 2026-27 that restructuring PFC and REC would be the first step in a larger plan to improve scale and efficiency in public sector NBFCs. The PFC board gave in-principle approval on February 6, 2026, followed by REC’s board.
In June 2026, the President of India granted approval through the Ministry of Power, clearing the way for the boards to finalise the merger scheme. The government also set up a high-level committee and a working group to handle personnel integration, including harmonisation of pay, promotion policies, and organisational restructuring.
Chronology of Key Events
| Date | Event |
|---|---|
| December 2018 | CCEA approves sale of GoI stake in REC to PFC |
| March 2019 | PFC acquires 52.63% in REC for Rs 14,500 crore |
| February 1, 2026 | FM announces restructuring of PFC and REC in Budget 2026-27 |
| February 6, 2026 | PFC and REC boards give in-principle approval for merger |
| February 19, 2026 | Government sets up panels to work out merger process |
| June 10, 2026 | President of India approves the merger |
| June 28, 2026 | Both boards approve final merger scheme with share swap ratio |
Key Terms of the Merger Agreement
The merger scheme, approved by both boards, contains several important provisions.
Share Exchange Ratio
The board approved a share exchange ratio of 88:100. For every 100 equity shares of REC (face value Rs 10 each), shareholders will receive 88 equity shares of PFC (face value Rs 10 each). No cash consideration is involved in the transaction.
The ratio was determined based on a joint valuation report dated June 28, 2026, issued by independent valuers M/s. Ernst & Young Merchant Banking Services LLP and M/s. RBSA Valuation Advisors LLP. Fairness opinions were provided by SBI Capital Markets Limited (for PFC) and Nuvama Wealth Management Limited (for REC).
Advisors to the Merger
| Role | Advisor |
|---|---|
| Transaction and Tax Advisor | Deloitte Touche Tohmatsu India LLP |
| Legal Advisor | Cyril Amarchand Mangaldas |
| Joint Valuers | Ernst & Young Merchant Banking Services LLP and RBSA Valuation Advisors LLP |
| Fairness Opinions | SBI Capital Markets Limited and Nuvama Wealth Management Limited |
Conditions and Approvals
The merger is subject to approval from shareholders and creditors of both companies, as well as regulatory clearances from the Securities and Exchange Board of India (SEBI), the National Company Law Tribunal (NCLT), stock exchanges (NSE and BSE), and other statutory and regulatory authorities.
A critical condition is that the merged entity must continue to qualify as a Government Company under the Companies Act, 2013, with the Government of India retaining majority voting rights and management control.
Rationale Behind the Merger
The merger is driven by several strategic objectives that align with the government’s broader vision for public sector NBFCs as outlined in the Viksit Bharat framework.
Creating scale: The combined entity will have an aggregate loan book exceeding Rs 11 lakh crore and a consolidated net worth of over Rs 1.73 lakh crore. This scale will enable it to finance larger power sector projects and raise funds at more competitive rates in both domestic and international markets.
Improving operational efficiency: The merger eliminates duplicate administrative, compliance, and reporting structures. Both organisations operate with lean cost structures, but the combined entity is expected to achieve further cost savings through unified processes, consolidated borrowings, and a single brand presence.
Simplifying ownership structure: REC has been a subsidiary of PFC since 2019. The merger eliminates the holding company-subsidiary structure, replacing it with a single unified entity. This simplifies governance, reduces regulatory compliance overhead, and removes potential conflicts of interest between the parent and subsidiary.
Strengthening lending capacity for energy transition: Both PFC and REC play a central role in financing India’s energy transition. REC alone has committed Rs 6 trillion towards India’s energy transition by 2030. The combined entity will be better positioned to channel long-term capital into renewable energy, battery storage, green hydrogen, and grid modernisation projects that are essential for meeting India’s Net Zero by 2070 target.
Significance and Implications
The merger has far-reaching implications across multiple dimensions.
For the power sector: India’s power sector requires massive investment to meet growing electricity demand, integrate renewable energy, and modernise the grid. The National Electricity Plan projects a need for over Rs 30 lakh crore in power sector investments over the next decade. A larger, more efficient financier is better equipped to meet these requirements.
For the government’s NBFC consolidation strategy: This merger is the first step in a broader plan to restructure public sector NBFCs. The government has outlined a vision for NBFCs under the Viksit Bharat framework with clear targets for credit disbursement and technology adoption. A successful PFC-REC integration could set a template for further consolidation among other public sector financial institutions.
For bondholders and investors: Bonds issued by both entities carry covenants requiring majority government ownership. The merger terms specifically ensure that the Government of India retains majority voting rights, preventing any breach of these bond conditions. The combined entity’s stronger balance sheet and larger scale are expected to improve its credit profile and access to capital markets.
Challenges and concerns: Integration of two large organisations with distinct corporate cultures, operational systems, and personnel policies is a complex task. Harmonising pay scales, promotion policies, and technology platforms without disrupting ongoing lending operations will require careful execution. The merger also requires the government to maintain a majority stake above 51%, which may necessitate a capital infusion if the share swap dilutes the government’s holding below this threshold.
The Way Forward
The merger is expected to become effective from April 1, 2027, subject to all regulatory approvals and clearances. The immediate next steps involve seeking approval from shareholders and creditors of both companies, followed by regulatory clearances from SEBI, NCLT, stock exchanges, and other authorities.
Once completed, the combined entity will be better positioned to support India’s ambitious power sector targets. India aims to add 500 GW of renewable energy capacity by 2030 and achieve Net Zero emissions by 2070, both of which require unprecedented levels of financing. A consolidated power sector NBFC with a Rs 11 lakh crore loan book will be a critical instrument in mobilising the required capital.
The success of this merger will also be watched closely as a potential model for restructuring other public sector financial institutions. If integration challenges are managed effectively, the PFC-REC merger could pave the way for similar consolidation across India’s public sector NBFC landscape.
Key Takeaways
- The boards of PFC and REC Ltd approved a merger scheme on June 28, 2026, to absorb REC into PFC under Sections 230 to 232 of the Companies Act, 2013.
- The combined entity will have an aggregate loan book exceeding Rs 11 lakh crore, making it India’s largest power sector financing institution.
- The share exchange ratio is 88 PFC shares for every 100 REC shares, with no cash consideration.
- PFC, established in 1986, and REC, established in 1969, are both Maharatna CPSEs under the Ministry of Power.
- PFC acquired a 52.63% stake in REC from the government for Rs 14,500 crore in March 2019.
- The merger was first proposed in the Union Budget 2026-27 by Finance Minister Nirmala Sitharaman and received Presidential approval on June 10, 2026.
- The merger is expected to become effective from April 1, 2027, subject to approvals from shareholders, creditors, SEBI, NCLT, and other regulators.
