PFC FY26: Record profit, cleaner book, and a merger roadmap

Power Finance Corporation (PFC) closed FY26 with two themes running in parallel: a strong set of financial numbers and the beginning of what management called a defining structural shift, the proposed merger of REC into PFC.

At the group level, consolidated profit after tax rose to INR 33,625 crore for FY26, up 10 percent year on year, alongside a consolidated loan asset book of INR 11.64 lakh crore. Net worth including non controlling interest increased to INR 1,73,441 crore, up 12 percent. Asset quality was highlighted as a key differentiator, with consolidated net credit impaired asset ratio at 0.13 percent.

On a standalone basis, PFC reported its highest ever annual PAT of INR 20,051 crore, a 16 percent increase over FY25. Management attributed the rise to net interest income growth and provision reversals of around INR 1,800 crore during the year, including reversals linked to resolutions and improved provisioning requirements on parts of the distribution book under the ECL framework.

Consolidated snapshot: scale with improving asset quality

PFC’s presentation positions the group as the largest NBFC in India by size. For FY26, consolidated loan assets reached INR 11,63,768 crore. The same deck also shows a steady decline in credit impaired ratios over multiple years, with gross NPA at 0.66 percent and net NPA at 0.13 percent in FY26.

A large part of the growth narrative continues to come from energy transition financing. The presentation shows the renewable energy loan book increasing to INR 90,135 crore in FY26 from INR 81,031 crore in FY25 and more than doubling over five years. PFC also stated it has supported about 66 GW of renewable energy capacity, described as about 24 percent of India’s non fossil fuel based installed capacity till FY26.

Standalone FY26: profit record, stable spreads, and resolution gains

Standalone performance remained the anchor for shareholder returns. PFC reported CRAR of 23.44 percent as of 31 March 2026 and Tier 1 of 21.93 percent. Net worth increased to INR 1,02,532 crore from INR 90,937 crore.

Margins were stable but management acknowledged a competitive lending environment and a lower domestic rate cycle. For FY26, yield on earning assets was 9.96 percent, cost of funds 7.50 percent, and interest spread 2.46 percent. Net interest margin on earning assets was 3.55 percent.

In the investor meet, management guided spreads of 2.40 percent to 2.50 percent for FY27, pointing to a combination of competitive pricing on the asset side and volatility in forex markets affecting the overall funding cost.

Asset quality improved further on the standalone book. Net credit impaired asset ratio was reported at 0.15 percent and gross at 1.09 percent. The company also highlighted resolution of Sinnar Thermal Power Ltd, a 1,350 MW project with an outstanding of INR 3,001 crore. Management said it recovered 42 percent of principal and the resolution resulted in a provisioning write back of about INR 670 crore during the quarter. Another resolution mentioned was TRN Energy loan of INR 1,139 crore with a provision reversal of about INR 160 crore.

Loan book mix and operating levers: renewables, T and D, and a measured infra push

As of 31 March 2026, standalone gross loan assets were INR 5,80,115 crore versus INR 5,43,120 crore a year earlier. The loan book remains diversified across generation, transmission and distribution, with distribution continuing as one of the largest segments.

Within generation, conventional generation stood at INR 1,87,661 crore and renewable energy at INR 90,135 crore. Large hydro projects were INR 18,783 crore. Transmission was INR 42,029 crore, distribution INR 1,93,630 crore, and infrastructure and logistics INR 52,076 crore.

Disbursements for FY26 were INR 1,65,414 crore, broadly similar to FY25’s INR 1,68,265 crore. Management explained that the apparent moderation was partly due to the mix shifting away from short tenor revolving facilities used by distribution companies, which inflate disbursement numbers through rollovers, toward medium term loans.

A key operating headwind in FY26 was elevated prepayments. Management said that in a declining interest rate cycle, prepayment pressure is a known risk for NBFCs, and in FY26 banks aggressively refinanced commissioned assets. PFC stated that without these prepayments, loan growth would have been within its earlier guided range of 10 to 11 percent. Actual loan book growth was reported at about 7 percent.

For FY27, management is targeting loan growth of around 10 percent and stated it does not expect further RBI rate cuts, suggesting that prepayment pressures may moderate.

In the same investor meet, management also spoke about the sector backdrop: India’s installed capacity crossing 530 GW, with non fossil additions of about 55 GW in FY26, and peak demand reaching 256 GW in April 2026. This environment underpins demand for hybrid renewables and storage linked projects.

PFC said it has already sanctioned around INR 16,000 crore towards battery and pump storage projects. The company positioned this as an early mover advantage as tenders increasingly include storage.

Funding profile: diversified borrowings with hedging discipline

As of 31 March 2026, outstanding borrowings were INR 4,88,516 crore. The borrowing mix in the presentation shows domestic bonds at INR 2,74,736 crore (56 percent), term loans from banks and financial institutions at INR 94,668 crore (19 percent) and foreign currency borrowings at INR 97,513 crore (20 percent). Management stated that 65 percent of liabilities are fixed rate, offering balance sheet stability.

Forex risk management remains central given the size of foreign currency borrowings. The presentation states 97 percent of exchange risk is hedged on the total foreign currency loan portfolio. Management also described FY26 as highly volatile for global currencies, with rupee depreciation leading to higher translation losses, and said hedging structures provide defined protection ranges with ongoing monitoring.

The merger roadmap: REC into PFC, targeted by April 2027

The largest strategic development is the proposed merger of REC into PFC, announced in Union Budget 2026. In the investor meet, management said both boards have given in principle approval and that advisors including legal, transaction, merchant bankers and registered valuers have been appointed.

The company is working on valuation and the draft merger scheme and is targeting the merged entity to come into existence by 1 April 2027, subject to approvals from MCA, RBI, SEBI, Cabinet and the President of India.

A key discussion point is maintaining government company status after the merger. Management acknowledged that modalities are under discussion and stated that the government has committed to maintaining the status, including potential issuance of securities or infusion of capital.

The board outcome announcement dated 16 May 2026 also states that the board has reserved the proposal for the President of India’s approval and authorized the CMD to apply for approval for the proposed merger, subject to maintaining government company status.

Closing takeaways

PFC’s FY26 results show a lender operating with scale, strong profitability, and markedly improved asset quality. Standalone profit reached a record, provisioning coverage remains high, and the Stage III book has reduced meaningfully from its peak, with management stating around 80 percent of the NPA book has been resolved.

Near term, management is preparing investors for tighter spreads and competitive intensity, but it has also offered a clear FY27 loan growth target of around 10 percent and a spread guidance of 2.40 percent to 2.50 percent.

Strategically, the proposed merger with REC is the most consequential catalyst, but it is also the most uncertain variable, dependent on regulatory and government approvals and clarity on government company status. If executed within the stated timeline, it would create a single, larger institution with a combined balance sheet positioned as a central financing partner for India’s expanding power and energy transition needs.