The Centre plans to merge Power Finance Corporation (PFC) and REC Ltd as part of a broader restructuring of public sector non-banking financial companies to build scale, reduce operational overlap and improve the efficiency of long-term infrastructure financing, a senior government official said on condition of anonymity.
The proposal was formally flagged by Finance Minister Nirmala Sitharaman in her Union Budget speech, where she said the government would restructure PFC and REC to “achieve scale and improve efficiency” in public sector shadow lenders. Both entities are key financiers of India’s power sector, lending to generation companies, transmission utilities, power distribution firms and equipment manufacturers.
Difference between the two lenders
Over the years, however, the distinction between the two lenders has blurred. Originally created with different mandates — PFC focusing on power generation and transmission and REC on rural electrification and distribution — both now operate across the same segments. This has led to increasing competition for the same projects, duplicated due diligence and parallel financial products, prompting concerns within the government over inefficient capital deployment.
“Government-owned NBFCs are essential in supporting credit flow to the infrastructure sector. However, there has been a growing overlap in their operations recently, resulting in competition for financing the same projects,” rating agency ICRA said in its Budget 2026–27 report. The proposed restructuring, it said, appears aimed at clearly defining target segments, enhancing segment diversity, including green financing, and strengthening overall credit flow to infrastructure.
Together, PFC and REC dominate institutional lending to the power sector. The two have a combined loan book of nearly ₹12 lakh crore and a combined net worth of about ₹1.8 lakh crore, giving the government a powerful financial lever to support sectoral priorities.
What do experts say?
Experts say consolidation could allow the government to create a larger, more diversified lender capable of supporting India’s evolving infrastructure needs beyond conventional power assets.
“PFC and REC have spearheaded the financing of the power sector. As a combined institution, they can be a force multiplier for the broader infrastructure sector and particularly new and emerging areas like data centres, logistics and the maritime sector,” said Manish Aggarwal, Partner at Deloitte India.
He added that operational efficiency would need to be driven through technology-led transformation to fully realise the benefits of scale.
At the same time, Aggarwal cautioned that a full corporate merger could pose short-term challenges. Credit concentration norms applicable to a single entity could temporarily affect the availability of investor capital.
He also flagged the importance of government shareholding, noting that if it falls below 51%, investor confidence would hinge on assurances that implicit government support would continue.
The restructuring push also reflects the changing contours of India’s energy sector. Sambitosh Mohapatra, Partner and Leader for Climate and Energy at PwC India, said India’s accelerated energy transition, ambitious renewable targets and rising transmission requirements have made reform unavoidable. “REC and PFC currently have overlapping mandates and operations, leading to duplicated due diligence, parallel products and unclear accountability,” he said.
According to Mohapatra, consolidation could strengthen balance sheets, improve credit ratings and enhance access to domestic and global capital markets, lowering borrowing costs and enabling innovative financing for renewable and transmission projects. However, he warned of hurdles ranging from regulatory uncertainty and asset valuation to employee resistance and political sensitivities.
Raju Kumar, Partner and Energy Tax Leader at EY India, said the restructuring “could improve credit flow and execution discipline across the power sector,” particularly as India scales up investment in clean energy and grid infrastructure.
For the government, the PFC-REC restructuring is a strategic attempt to align financial institutions with India’s infrastructure and energy transition goals. For investors, it marks the start of a complex process that offers potential value creation through scale and efficiency, while also carrying execution and governance risks that will need close monitoring.