Budget 2026-27: Govt to restructure PFC, REC as part of NBFC reform push

New Delhi: Finance Minister Nirmala Sitharaman has announced the restructuring of state-owned Power Finance Corp (PFC) and its arm REC Ltd, as part of the government’s broader vision for non-banking financial companies (NBFCs).

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“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 2026-27 speech, without detailing what the restructuring would entail.

Maharatna NBFCs in the power sector

The state-run, Maharatna NBFCs, controlled by the power ministry, provide long-term financing and loans to the power and infrastructure sectors in India. In May 2019, PFC acquired a majority 52.63 percent stake in REC and is currently categorised as a promoter of the latter. The two NBFCs were expected to be merged in 2019-20; however, the merger did not materialise due to the Reserve Bank of India’s (RBI) caps on financing by a single NBFC lender to an individual project.

'Strengthening PSU NBFCs could bring better scale'

“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.

“Thoughtful execution” of these reforms can materially improve credit delivery and resilience across the financial ecosystem, he added.

Growth outlook for PFC and REC

In an October 2025 report, Morgan Stanley said that PFC and REC are likely to post a compound annual growth rate of about 12 percent in loans between FY25 and FY28, while delivering an average return on equity of 17–19 percent.

The brokerage added that the risk-reward outlook remains attractive, citing modest FY27 valuations of 5–6 times earnings, which support sustainable low- to mid-teens loan growth and a dividend yield of 3.8–4.5 percent.

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