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New Delhi: Power Finance Corporation (PFC) has said that no breach of borrower exposure norms is foreseen following its proposed merger with REC Ltd, and that adequate borrowing headroom would be available post-merger, according to a regulatory filing made to stock exchanges on Thursday.
The clarification comes in continuation of its earlier intimation dated February 6, 2026 regarding the proposed restructuring of PFC and REC.
Addressing lending exposure concerns, the filing stated, “Currently, both entities operate well within the prescribed exposure limits. Post-merger, these limits will apply to the consolidated Tier I capital of the merged entity. Given the strong net worth of both entities, any breach wrt borrower exposure norms is not foreseen.”
“The merged entity is expected to maintain comfortable capital levels to support future lending growth,” it added.
The filing disclosed that the current outstanding borrowing mix of both entities comprises approximately 18 percent domestic bank/FI borrowings, 25 percent foreign currency borrowings and 57 percent domestic bond borrowings.
It noted that prior to the 2019 acquisition of REC by PFC, both entities were subject to a single-entity exposure limit of 20 percent each. Following the acquisition, the combined exposure under the RBI’s Large Exposure Framework was capped at the group limit of 25 percent of respective banks’ Tier I capital.
“Further, for over five years, both entities have been operating comfortably within the applicable group limits,” the filing said.
Post-merger, “a single-entity exposure limit of 20 percent would apply to the merged entity.”
Referring to the broader banking system, the filing stated, “It is to mention that the aggregate Tier I capital of the top ten Indian banks is approximately Rs 18 lakh crore as per annual reports of 31st Mar, 2025, which will further increase on account of profit accretion. In view of this and the current bank borrowings of both the entities, we believe that adequate headroom would be available for additional borrowings.”
It added, “Considering the above and the multiple funding avenues available, we expect to manage this transition smoothly without any material constraints.”
PFC had acquired a 52.63 percent equity stake in REC in 2019, following which REC became a subsidiary of PFC, in line with the Government of India’s approval.
The filing said, “Now, the renewed momentum towards consolidation reflects continuity in strategic intent. This proposed merger represents a step towards creating a single, focused institution to address the evolving financing needs of the power sector.”
On synergies, the companies stated that on a consolidated basis, the merged entity is expected to benefit from “improved balance sheet strength, capital efficiencies, and operational synergies, enabling large-scale funding and improved credit flow across the power sector value chain.”
“Based on consolidated metrics, the merged entity would be positioned as the largest power sector financer in India,” the filing added.
The filing reiterated that the Boards of PFC and REC had accorded in-principle approval for restructuring in the form of a merger following the Union Budget announcement to consolidate public sector NBFCs.
It said the merger structure is currently under deliberation and that “appropriate external agencies will be appointed, including consultants, valuation experts, and legal advisors, to ensure structured, timely, and compliant execution of the merger, subject to applicable regulatory approvals.”
The merged entity will continue as a government company, with the Government of India retaining control, including the right for appointment or removal of board members. In the Union Budget presented on February 1, Finance Minister Nirmala Sitharaman had announced the restructuring of PFC and REC “with the objective of achieving scale and improving efficiency among Public Sector NBFCs.”
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