Restructuring Power Finance Corporation and Rural Electrification Corporation: A Leap Towards Efficient Public Sector NBFCs

The consolidation of PFC and REC aligns with the government’s long-term vision to establish a strong and resilient institutional framework for financing the power sector. If implemented smoothly, without any political or operational impediments, the merger could substantially reinforce India’s infrastructure and energy ecosystem in the decades ahead.

February 20, 2026. By News Bureau

Tags:

articles

Power Finance Corporation

Rural Electrification Corporation

Efficient Public Sector

Rural Electric Cooperatives

Net-Zero Targets

Non-Banking Financial Companies (NBFCs) in the Indian power sector specialise in financing power and energy infrastructure projects in India. Power sector-focused NBFCs such as Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) play a strategic role in India’s electricity and energy infrastructure ecosystem. PFC is a Public Sector Undertaking under the Ministry of Power and is also registered as a Systematically important Non-Banking Financial Company (SINBFC) with the Reserve Bank of India (RBI). REC is an Indian public sector company that finances and promotes power projects across India. It is registered with RBI as a Non-Banking Financial Company. REC gives loans to various stakeholders in the grassroot level such as Central/State power utilities, State Electricity Boards, Rural Electric Cooperatives, NGOs and private power developers.

During presentation of the Union Budget 2026, the restructuring of PFC with REC has been proposed. The aim behind such a proposed reform are Potential merger between PFC with REC;Enhancing balance sheet strength of the amalgamed entity to support larger lending to more power utilities and state-owned power distribution companies (DISCOMs);Enabling credit based assistance towards power, energy transition, and allied infrastructure projects. Moreover, there is no mention of date when merger process will commence and how process will actually take place. Further, in order to carry out such a merger, Government of India must ensure that there is compliance with provisions of Companies Act, 2013 and the respective RBI Regulations pertaining to amalgamation of NBFCs.

PFC and REC both operate within an ecosystem of high dependency on DISCOMs and contribute to rural electrification, which in turn supports low-income, energy-deprived areas. The amalgamated entity is expected to benefit from an enhanced lending capacity driven by a stronger capital base and lower cost of funds, improved operational efficiency through integration of business functions, and a strengthened asset base, revenue profile, and product and service offerings. The merger would enable optimal utilisation and rationalisation of capital, resources, assets and facilities, support better management focus on business growth, reduce operating costs, and improve capital efficiency. It could also align the entity with India’s push for renewable energy expansion, grid modernisation and rural power access, while enhancing competitiveness vis-à-vis private financial institutions and lenders. The proposed merger is expected to strengthen lending capacity to DISCOMs and power utilities while reducing losses of the amalgamated entity, enable improved funding for large-scale renewable and conventional power projects including green hydrogen and smart grids, expand lending to global utilities, achieve economies of scale, and eliminate operational overlap arising from both entities catering to a similar borrower base. However, at this stage, it is not apparent whether the proposed merger would be able to meet objectives and expectations of Government of India.

There are some long-term implications of proposed merger on power and infrastructure sector which includes improved financing terms with reduced interest rates for solar, wind, thermal and nuclear projects; strengthened institutional role in advancing India’s 2070 net-zero carbon goals through increased focus on renewable energy and green hydrogen initiatives. The proposed restructuring of Power Finance Corporation and Rural Electrification Corporation represents a strategic initiative of the Government of India. The consolidation of PFC and REC aligns with the government’s long-term vision to establish a strong and resilient institutional framework for financing the power sector. If implemented smoothly, without any political or operational impediments, the merger could substantially reinforce India’s infrastructure and energy ecosystem in the decades ahead.

- Vishnu Sudarsan (Partner), Samrat Chakraborty (Associate), Sahil Arora (Associate), JSA Advocates & Solicitors