PFC board gives in-principle approval for merger of REC with itself

State-owned Power Finance Corporation Ltd (PFC) on Friday (February 6) said its board of directors approved the acquisition of 52.63% of the government’s holding in Rural Electrification Corporation Ltd (REC). With this acquisition, REC will operate as a subsidiary of PFC, making PFC the holding company.

The decision follows the 'In Principle’ approval from the Cabinet Committee on Economic Affairs (CCEA). The PFC Board also took note of the announcement made by the Union Finance Minister on February 1, 2026.

In the Union Budget 2026, Union Finance Minister Nirmala Sitharaman announced, "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 the Power Finance Corporation and Rural Electrification Corporation."

Also Read: PFC Q3 Results: Core income growth of 19%; Asset quality improves, dividend declared

The PFC Board granted in-principle approval for the merger of PFC and REC, ensuring that the merged entity will continue to operate as a "Government Company" under the Companies Act, 2013, and other applicable laws. The detailed merger scheme will be shared once all requisite approvals are obtained.

PFC and REC have remained separate entities primarily due to RBI regulatory constraints on NBFC exposure limits and strategic benefits of maintaining competition.

Regulatory Roadblocks

RBI caps single-project exposure at 25% of an NBFC's capital base. As separate firms, PFC and REC could together finance up to 50% of power projects they both backed — post-merger, the combined entity would breach limits in dozens of existing loans, forcing costly deleveraging or divestments. In March 2019, PFC had completed the acquisition of 52.63% stake in REC (₹14,500 crore deal) with the hope of a merger of the two firms in 2019-20.

Also Read: Budget 2026: PFC, REC shares surge after restructuring proposal by FM Sitharaman

Shares of Power Finance Corporation Ltd ended at ₹419.20, up ₹1.85, or 1.01%, on the BSE. In contrast, shares of REC Limited closed at ₹372.50, down ₹9.60, or 2.51%, on the BSE.