New Delhi: Power Finance Corporation's (PFC) board of directors, at a meeting held on May 16, reserved the proposal for the merger of REC Limited into PFC for the President's approval. The board, the filing states, has "approved the authorisation to the CMD of PFC to make an application to, and seek the approval of, the Hon'ble President of India for the said proposed merger of REC into PFC, on such share exchange ratio as may be determined by the valuers duly appointed for this purpose."
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A critical condition governs the transaction: the merger is "subject to maintaining the merged entity's status as a 'Government Company' (including by way of issuance of necessary securities to / infusion of capital by, the Central Government)." The proposal remains "subject to final approval of the Board of Directors and receipt of such other consents, approvals, and permissions as may be required and on such other terms and conditions as may be considered appropriate."
The filing is unambiguous on REC's fate once the transaction is consummated. "Upon the merger being duly approved under applicable law and being made effective, all the assets and liabilities of REC shall be transferred to PFC, and REC shall stand dissolved in accordance with the provisions of Sections 230-232 of the Companies Act, 2013."
The trading window for PFC's equity shares and listed debt securities — including tax-free bonds — "will continue to remain closed till further orders," with all designated persons and their immediate relatives advised "not to deal (i.e. buy, sell or pledge etc.) in PFC's Equity Shares/Securities during the Closure of Trading Window."
The merger has been in the making for several years. PFC acquired a majority 52.63 percent stake in REC in May 2019 and is currently categorised as its promoter. A merger was considered as far back as 2019-20 but did not materialise, largely because of the Reserve Bank of India's (RBI) caps on financing by a single NBFC to an individual project.
The proposal received fresh political momentum in the Union Budget 2026-27, when Finance Minister Nirmala Sitharaman announced plans to restructure the two state-owned power sector lenders. "The vision for NBFCs for Viksit Bharat has been outlined with clear targets for credit disbursement and technology adoption. 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," Sitharaman said in her Budget speech.
Both PFC and REC are Maharatna Non-Banking Financial Companies (NBFCs) under the Ministry of Power, providing long-term financing to India's power and infrastructure sectors. A merged PFC-REC would be among the largest government-owned NBFCs in the country by loan book. In an October 2025 report, Morgan Stanley projected that PFC and REC are likely to post a compound annual growth rate of approximately 12 percent in loans between FY25 and FY28, while delivering an average return on equity of 17-19 percent.
Analysts have flagged the strategic logic of the consolidation. "Strengthening public sector NBFCs through better scale, governance and technology adoption is critical to ensuring that long-term capital reaches infrastructure and priority sectors efficiently, without compromising on financial stability or consumer protection," Varun Gupta, Chief Executive Officer of Groww Mutual Fund, said at the time of the Budget announcement. "The planned restructuring of key power-sector lending institutions may influence how climate finance flows to the energy transition, making it important to watch," added Sheetal Sharad, Chief Ratings Officer, ICRA ESG Ratings Limited.
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The merger now heads to the President of India for approval — an unusual route that reflects the government's direct stake in both entities and the constitutional position of the President as the approving authority for mergers involving government companies under the Companies Act. Once presidential approval is received, the transaction will require further regulatory and legal clearances before it can be made effective.You said: The proposal has been reserved for the President's approval.
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