In a major policy shift announced during the Union Budget 2026–27 on February 1, 2026, the Indian government has officially proposed the restructuring of state-run power lenders Power Finance Corporation (PFC) and REC Ltd.
While Finance Minister Nirmala Sitharaman did not explicitly use the word “merger” in her speech, the announcement has triggered intense market speculation and follow-up reports suggesting a full consolidation is being evaluated.
1. The Budget Proposal: “Achieve Scale & Efficiency”
The Finance Minister framed the restructuring as a “first step” toward a larger vision for public-sector Non-Banking Financial Companies (NBFCs).
- The Goal: To streamline operations, reduce overlapping functions, and improve capital utilization.
- Viksit Bharat: The move is aligned with the government’s 2047 vision, setting clear targets for credit disbursement and technology adoption in infrastructure financing.
- Rationalization: In post-budget briefings, the FM noted the intent is to “rationalize” and “streamline” these entities.
2. The Case for a Merger
Multiple sources and high-level officials have indicated that a full merger is the most likely outcome of this restructuring.
- Overlapping Mandates: Originally, PFC focused on generation/transmission while REC focused on rural electrification. Today, both compete for the same projects in the renewable energy and distribution sectors.
- Capital Strength: DFS Secretary M. Nagaraju noted that a merger would create a stronger balance sheet, allowing the combined entity to borrow more cheaply from global markets and lend to larger-scale green energy projects.
- Existing Link: PFC already holds a 52.63% promoter stake in REC, which it acquired from the government in 2019 for ₹14,500 crore.
3. Key Challenges & Official Denials
Despite the “merger buzz,” there are significant hurdles that have stalled previous attempts (like in 2019):
- Exposure Limits: RBI norms cap the amount a single NBFC can lend to an individual project. A merger would effectively halve the total lending capacity for massive power projects unless the RBI grants a specific waiver.
- REC’s Clarification (Feb 3, 2026): In a formal filing to stock exchanges today, REC Limited clarified that it is “not engaged in any negotiations or discussions” regarding a merger at this time, maintaining that the current focus is strictly on the “restructuring” mentioned in the Budget.
4. Market Reaction
The announcement has been a massive tailwind for both stocks:
- Stock Surge: Shares of PFC and REC rallied up to 6% on February 1 and continued to trade with a positive bias through February 3.
- Investor Sentiment: Analysts at Morgan Stanley and ICRA suggest that even without a full merger, the “restructuring” will likely improve governance and focus on high-growth areas like green hydrogen and data centers.
Summary Table: The PFC-REC Powerhouse
| Metric | PFC (Standalone) | REC (Standalone) | Combined (Approx.) |
| Loan Book | ~₹5.61 Lakh Cr | ~₹5.82 Lakh Cr | > ₹11 Lakh Cr |
| Net Worth | ~₹85,000 Cr | ~₹78,000 Cr | ~₹1.6 Lakh Cr |
| Status | Maharatna | Maharatna | Sovereign Lending Giant |
