Govt likely to consider merger of state-run financiers PFC and REC

Following the announcement, shares of the two entities surged up to 6% on Sunday's special trading session

The Centre is likely to consider a merger of state-run power-sector lender Power Finance Corporation (PFC) and its subsidiary REC as part of the restructuring push, according to sources. 

“A road map for that (the merger) will be soon announced. A decision is expected shortly although procedural steps need to be completed. After that, the proposal will go to the Cabinet for approval. One of the two names will be retained, and no third entity will be created,” said the source. 

The merger is aimed at achieving synergy between the two organisations, according to the source.  

REC, formerly Rural Electrification Corporation, was originally mandated, as its earlier name suggests, to focus on rural electrification, but its role has since evolved and now overlaps significantly with PFC’s. “Given this convergence, the government is considering a single identity for both entities,” added the source. 

In her Budget speech on Sunday, Finance Minister Nirmala Sitharaman  proposed restructuring REC and PFC as part of the government’s strengthening of public-sector financial institutions. The government holds a 56 per cent stake in PFC, which owns 52.63 per cent in REC. 

“Modalities for this have to be worked out by the power ministry, which is the administrative ministry for both,” the source added.

In March 2019, PFC completed the acquisition of a majority stake in REC by transferring ₹14,500 crore to the government and was hopeful of the merger of the two firms in 2019-20, which fell through. PFC acquired the government’s 1,039.4 million shares, constituting 52.63 per cent, in REC, along with management control. The acquisition price was worked out to ₹139.50 per share. This stake acquisition came following in-principle approval from the Cabinet Committee on Economic Affairs.  

Both PFC and REC are Navratna central public-sector enterprises, and this acquisition was a step towards consolidating companies operating in the same space. 

PFC shares on Monday on the BSE closed higher by 1.13 per cent at ₹385.60 while REC gained 1.23 per cent to settle at ₹363.10. In the second quarter of 2025-26 (Q2FY26), PFC had reported standalone loan asset books of ₹5.6 trillion, with the renewable-energy loan books growing 32 per cent year-on-year at ₹84,680 crore. REC’s loan books were at ₹5.82 trillion in Q2. 

“Consolidation will indicate that the entities would be merged.  Hence, under a merger process, the minority shareholders of REC would get equity shares of PFC in accordance with the pricing norms decided by the valuers,” said a senior analyst. He added that merging two entities of this size could create fresh challenges because their lenders may hit exposure norms and may not be able to increase lending. 

Sanjay Doshi, partner and head, transaction services and financial services advisory, KPMG India, said restructuring the two offered India a strategic opportunity to build a more agile and future-ready infrastructure financing engine. “By strengthening capital efficiency, sharpening focus on renewables and enhancing system-wide risk management, such a move would reinforce financial-sector stability while accelerating the nation’s energy transition and long-term growth agenda,” he said.