PFC-REC merger 2026: President clears plan for approval

Merger moves a step closer after presidential clearance

Power Finance Corporation (PFC) and REC Limited have moved further on the proposed consolidation of the two state-owned power sector financiers, after the President of India approved the merger proposal. REC disclosed in a regulatory filing that the Ministry of Power, through a letter dated June 10, 2026, conveyed the approval of the Competent Authority in respect of the merger of REC into PFC. The proposal comes after both boards decided to reserve the merger plan for presidential approval under their Articles of Association. The transaction is being pursued under Sections 230-232 of the Companies Act, 2013. Once the merger is legally approved and made effective, REC said its assets and liabilities would transfer to PFC and REC would be dissolved. The deal still needs additional regulatory and legal clearances before it becomes effective.

What the filings said and why the President’s approval matters

REC’s filing framed the President’s clearance as the approval of the Competent Authority, reflecting the government’s direct stake in both entities. The route is unusual compared with private sector mergers because the President is the approving authority for mergers involving government companies under the Companies Act framework, as referenced in the report. The filings also underline that the proposal remains subject to other consents, approvals, and permissions that may be required. PFC’s board had authorised its Chairman and Managing Director (CMD) Parminder Chopra to make the application and seek approval for the proposed merger. The share exchange ratio is to be determined by valuers appointed for the purpose, and it has not been finalised yet. The companies have not provided a timeline for completion in their filings.

Board decisions: in-principle approval to reserving the proposal

The merger proposal gathered pace after the Union Budget 2026-27, where Finance Minister Nirmala Sitharaman announced plans to restructure the two public sector NBFCs to achieve scale and improve efficiency. Following that, both boards granted in-principle approval on February 6, 2026, according to the information provided. Separately, PFC’s board met on May 16 and reserved the proposal for the President’s approval, authorising the CMD to approach the President. REC’s board also cleared the step of reserving the proposal for presidential approval, as required under its Articles of Association. Officials cited in the report said the merger was targeted to take effect from April 1, 2027, subject to regulatory and government approvals. The filings did not spell out the future management structure of the combined entity.

What happens to REC after the merger becomes effective

REC stated that once the merger is duly approved under applicable law and made effective, all assets and liabilities of REC will transfer to PFC. REC would then stand dissolved in accordance with Sections 230-232 of the Companies Act, 2013. In practical terms, this means REC would cease to exist as a separate listed entity once the scheme takes effect, subject to the required approvals and process. The integration is expected to be executed through a share swap, with REC shareholders receiving PFC shares based on an exchange ratio to be determined by appointed valuers. The documents also indicate that the detailed merger scheme would be formulated in line with applicable laws and regulatory requirements. Until the share exchange ratio is finalised and approvals are completed, the transaction remains at the proposal and approval stage.

A key condition: the merged entity must remain a government company

A critical condition attached to the merger is that the combined institution must maintain its status as a “Government Company.” The filings explicitly state this may require issuance of necessary securities to, or infusion of capital by, the Central Government to ensure the classification is maintained. This condition matters because PFC and REC are government-owned financial institutions under the Ministry of Power and their governance, compliance, and strategic mandate are tied to that status. The proposal is also subject to final approval of the Board of Directors and other consents and permissions that may be required. This creates a layered approval process where presidential clearance is an important step, but not the final one.

Background: PFC’s stake in REC and the consolidation rationale

The report notes that PFC completed the acquisition of the government’s majority stake of 52.63 per cent in REC Ltd for ₹14,500 crore, stated as occurring in March 2029. The same report also describes the merger approval as coming nearly seven years after PFC acquired the government’s majority stake in REC. Separately, PFC has said that following an in-principle approval of the Cabinet Committee on Economic Affairs (CCEA), it acquired 52.63 per cent of the government’s holding in REC and that PFC and REC were operating as holding and subsidiary companies. The consolidation rationale, as described in the Budget context, is to achieve scale and improve efficiency among public sector NBFCs. Both institutions provide long-term financing to India’s power and infrastructure sectors.

Why the deal is significant for India’s power-sector financing

PFC and REC are Maharatna NBFCs focused on long-tenure financing for power generation, transmission, distribution, and related infrastructure. A merged PFC-REC is expected to be among the largest government-owned NBFCs by loan book, as described in the report. The government’s stated objective is to build a single, focused institution that can cater to evolving financing needs in the power sector. The merger is also intended to reduce operational duplication and improve resource allocation, as outlined in the broader consolidation strategy referenced. However, the immediate market-relevant details that investors typically track, such as the share exchange ratio and the final scheme document, are still pending.

Market context and stock movement mentioned

The report cited stock performance following the February 6, 2026 developments. Shares of Power Finance Corp were reported to have risen 5.8% since then, while shares of REC were up 2.3%. No additional price levels, dates for those moves, or volumes were provided in the supplied text. The filings also did not indicate a timeline for completion or provide details on the future management structure, which are typically important inputs for market participants assessing merger execution risk.

Key facts at a glance

What to watch next

With the President’s clearance conveyed through the Ministry of Power, the merger still needs to pass through additional regulatory and legal steps before it can become effective. The most immediate pending item is the determination of the share exchange ratio by valuers, which will define how REC shareholders are compensated in PFC shares. Investors will also look for the detailed merger scheme and clarity on governance and management structure of the merged entity, which the filings have not yet provided. The companies have stated the merger remains subject to other consents, approvals, and permissions as required. Any final implementation timeline will depend on completion of these steps and the effectiveness date specified in the approved scheme.