New Delhi | October 28, 2026
The proposed merger of Power Finance Corporation (PFC) and REC Limited has moved closer to a crucial decision, with the Ministry of Finance reviewing the merger proposal before it is placed before the Union Cabinet. The proposed consolidation is aimed at creating a larger public-sector power financing institution capable of supporting India’s rapidly expanding electricity and infrastructure requirements.
According to the latest update, inter-ministerial consultations on the proposal have been completed and the matter has been forwarded to the Finance Ministry. Following the Finance Minister’s approval, the proposal is expected to be placed before the Union Cabinet. The government is targeting April 1, 2027, for the merger to become effective.
Government Ownership Emerges as Key Issue
One of the most important issues in the proposed restructuring is maintaining the government’s controlling stake in the merged entity.
The Centre currently holds approximately 55.99% in PFC, while PFC owns 52.63% of REC. After the merger, the government’s direct and indirect holding structure could result in its stake falling below the level required to maintain the merged company as a government-controlled entity.
To address this issue, the government is examining the possibility of issuing preference shares to itself. The mechanism is being considered instead of alternatives such as a fresh equity infusion or recapitalisation bonds. The final amount and terms of the proposed preference capital have not yet been determined.
Maintaining at least 51% government ownership and control is an important condition of the merger scheme approved by the two companies’ boards.
Boards Have Already Approved the Merger Scheme
The boards of PFC and REC approved the detailed merger scheme in June 2026. Under the proposed arrangement, REC will be amalgamated into PFC, with PFC continuing as the surviving entity.
The approved scheme provides for a share-exchange ratio of 88 PFC equity shares for every 100 REC equity shares held by eligible REC shareholders, 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, and remains subject to the necessary statutory, regulatory, shareholder and creditor approvals.
The Reserve Bank of India issued its no-objection certificate on October 15, 2026, while the National Stock Exchange and BSE issued their observation letters on October 19. These clearances have moved the proposed consolidation further through the regulatory process, although the merger is not yet complete.
A Power Financing Institution With Nearly ₹12 Lakh Crore Loan Book
The scale of the proposed merged institution is one of the major reasons the transaction is attracting attention.
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. Together, the two institutions had a combined standalone loan book of approximately ₹11.60 lakh crore.
The merged institution is therefore expected to emerge as a mega power-sector financing platform with a loan book approaching ₹12 lakh crore.
Both PFC and REC finance projects across India’s electricity value chain, including power generation, transmission and distribution. Their portfolios also increasingly include renewable energy and 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 financing for India’s power-generation and transmission infrastructure.
From Holding Structure to Single Institution
The proposed merger represents the next stage in the relationship between PFC and REC.
In 2019, PFC acquired the government’s 52.63% stake in REC, resulting in REC becoming a subsidiary of PFC. The proposed amalgamation would now bring the two businesses under a single balance sheet and corporate structure.
The government announced the restructuring initiative as part of the Union Budget 2026–27, with the objective of creating greater scale and improving operational efficiency among public-sector financial institutions.
A unified institution could potentially reduce duplication, improve capital efficiency and provide a larger financing platform for major power and energy-transition projects.
Potential Benefits for India’s Power Sector
India’s electricity sector is entering a period of substantial investment, driven by rising power demand, renewable-energy deployment, grid expansion, energy storage and the modernization of distribution infrastructure.
A larger PFC–REC institution could have the financial capacity to participate in increasingly large and complex projects.
The consolidation could potentially provide:
- Greater lending capacity for large power and infrastructure projects.
- Improved operational scale through a unified institutional structure.
- Stronger balance-sheet capacity for long-term infrastructure financing.
- Broader financing capabilities across conventional and renewable energy.
- Greater support for energy-transition projects, including storage and emerging technologies.
- A potential single-window financing platform for India’s power sector.
However, the benefits will depend on effective integration, prudent lending practices and the ability of the merged institution to manage concentration and credit risks.
What Happens Next?
The immediate milestone is the Finance Ministry’s consideration of the merger proposal. Once the Finance Minister approves the proposal, it is expected to move to the Union Cabinet.
The government will also need to finalise the mechanism for maintaining its minimum ownership and control in the merged entity.
The proposed transaction will subsequently require completion of the remaining statutory and regulatory processes, including applicable shareholder and creditor approvals and other legal formalities.
The companies have been working towards an April 1, 2027 effective date, although the timeline remains dependent on the completion of the required approvals.
The Worldonomics Times – PSU Perspective
The proposed PFC–REC merger could become one of the most significant public-sector financial-sector consolidations in India’s power industry.
With a combined loan book of approximately ₹11.60 lakh crore, the proposed institution would have considerable financial scale to support India’s next phase of electricity and infrastructure investment.
For the government, the key challenge will be to balance scale with financial discipline, while ensuring that the merged institution continues to operate efficiently and retains its government-company status.
If the remaining approvals are secured and the April 1, 2027 target is achieved, the merger could fundamentally reshape India’s public-sector power financing landscape and create a much larger institution to support the country’s energy-security and infrastructure ambitions.
The proposed PFC–REC merger is therefore not merely a corporate restructuring exercise; it represents a broader effort to build scale, strengthen public-sector financing capacity and prepare India’s power-financing architecture for the next phase of growth.
