Kamal Ghorui
NEW DELHI: State-owned power sector financiers Power Finance Corporation (PFC) and REC Ltd on Thursday informed stock exchanges that they are moving ahead with a proposed merger following the 2026-27 Budget announcement, aiming to create a single large govt-controlled financing institution for the electricity sector.In separate but identical regulatory filings, both companies said the combined entity would benefit from a stronger balance sheet, improved capital efficiency and operational synergies, enabling large-scale funding and better credit flow across the power value chain. Based on consolidated metrics, the entity would become the largest power-sector financier in India, the filings said.The merged financier is expected to support investments not only in conventional power infrastructure but also in emerging technologies such as green hydrogen, carbon capture, small modular nuclear reactors and energy storage solutions. “As a combined entity, it will have stronger technical capabilities and deeper sector expertise, which will be leveraged to capitalise on these emerging opportunities more effectively,” the companies said.Both firms clarified that they currently operate well within the Reserve Bank of India’s borrower-exposure norms. After the merger, limits will apply to the consolidated Tier-I capital, and no breach is anticipated given their strong net worth. The borrowing mix of the two firms consists of about 18% domestic bank and financial-institution borrowings, 25% foreign-currency borrowings and 57% domestic bonds. Following the merger, a single-entity exposure cap of 20% will apply, which the companies expect to manage smoothly due to diversified funding sources.The companies added that the top ten Indian banks together have around ₹18 lakh crore of core capital as of March 31, 2025, and this is expected to rise further with profits. Given this and their current borrowing levels, they said there is sufficient headroom to raise additional loans if required.The two entities also said the merger structure is still under deliberation, and external consultants, valuation experts and legal advisers will be appointed to ensure structured, timely and compliant execution. The transaction will be subject to regulatory approvals.The boards of PFC and REC had given in-principle approval on Feb 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.The restructuring proposal, 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 said the consolidation aligns with India’s long-term energy transition and investment needs as the country works toward its Viksit Bharat 2047 goals.PFC already holds a 52.63% equity stake in REC after acquiring it in 2019, making REC its subsidiary — a step the companies said reflects the government’s longer-term consolidation strategy in the sector.
