No word on merger: Budget 2026 proposes restructuring of PFC, REC

The Union Budget proposes restructuring of state-owned NBFCs PFC and REC to improve scale and efficiency, but the government has stopped short of indicating whether the two lenders will be merged

The Union Budget for 2026-27 (FY27) has proposed to restructure the Power Finance Corporation (PFC) and REC, the state-owned non-banking finance companies (NBFCs) lending to infrastructure projects.

 

The Centre, however, has not specified if these entities will be merged to form one entity. The government of India holds a 56 per cent stake in PFC and 52.6 per cent in REC.

 

“In order to achieve scale and improve efficiency in the public-sector NBFCs, as a first step, it is proposed to restructure PFC and REC”, Finance Minister Nirmala Sitharaman said in her Budget speech.

 

In the post-Budget press conference, she said: “We are rationalising it. We want to streamline it and therefore we will be taking some steps.” 

Experts said that the budget proposal to restructure these NBFCs is aimed at enhancing their operational efficiency. They added that this would serve as a template for restructuring of other public-sector NBFCs.

 

“Restructuring will happen more in the way they operate. The focus is more on operational efficiency. The government may increase the capital expenditure (capex) on PFC and REC. Once this is done, it will serve as an effective template for other public sector enterprise NBFCs,” said Vivek Iyer, partner and financial services risk leader, Grant Thornton Bharat.

 

In the second quarter of 2025-26 (Q2FY26), PFC had reported a standalone loan asset book of ₹5.6 trillion, with renewable energy loan book growing by 32 per cent year-on-year (Y-o-Y) at ₹84,680 crore. REC’s total loan book was at ₹5.82 trillion in Q2.