PFC-REC merger: President nod, key FY26 numbers

What has been approved and why it matters

The President of India has approved the proposed merger of REC Ltd into Power Finance Corporation (PFC), pushing forward a consolidation plan for two large public sector non-banking finance companies (NBFCs) focused on power-sector lending. The approval was conveyed by the Ministry of Power, according to REC’s regulatory filing. The move links back to the Union Budget 2026-27 proposal to restructure PFC and REC to achieve scale and improve efficiency in public sector NBFCs. For investors, the announcement shifts attention from the broad rationale of consolidation to the remaining execution steps, including statutory approvals and the eventual share exchange ratio.

The June 10 letter and the June 15 context

REC said the Ministry of Power, through a letter dated June 10, 2026, conveyed the approval of the Competent Authority, the President of India, for the proposal to merge REC into PFC. The June 15, 2026 communication is positioned as a continuation of earlier disclosures around the restructuring exercise. While the approval is a key milestone, the merger still needs to be approved under applicable laws and made effective through the required process. The filings also reiterate that the merged entity must continue to remain a “Government Company” under the Companies Act, 2013 and other applicable laws.

How the merger is structured under company law

REC has indicated the transaction is proposed under Sections 230-232 of the Companies Act, 2013, the standard framework for schemes of arrangement, including mergers. Once the merger becomes effective after all approvals, REC’s assets and liabilities will be transferred to PFC, and REC will stand dissolved. This structure implies a full absorption of REC into PFC rather than a holding-company style consolidation where both brands continue separately. The companies have also stated that the share exchange ratio is yet to be finalised and will be determined by independent valuers.

Board actions: from in-principle approval to reserving the proposal

The consolidation plan has moved through a sequence of board and government steps. On February 6, 2026, REC’s board accorded in-principle approval to proceed with restructuring in the form of a merger of REC and PFC and to formulate a detailed proposal under applicable laws and regulations. Later, a board meeting on May 16, 2026 considered the merger-related agenda, and the proposal was reserved for approval of the President of India, as required under the Articles of Association. With the President’s approval now conveyed by the Ministry of Power, the focus turns to completing the remaining statutory and regulatory clearances.

Why PFC and REC are being combined

The Budget 2026-27 proposal explicitly framed the restructuring as a way to achieve scale and improve efficiency in public sector NBFCs. Both PFC and REC finance the electricity sector, and the rationale stated in filings and related reporting includes stronger balance sheet capacity, improved capital efficiency and operational synergies. The merger is also described as supporting better credit flow across the power value chain. At the same time, the companies have not disclosed a completion timeline in their filings, and they have not set out the future management structure of the combined entity.

Background: PFC’s 2019 acquisition of REC’s majority stake

The merger follows PFC’s earlier acquisition of the government’s majority stake in REC. In March 2019, state-owned PFC completed the acquisition of a 52.63% stake in REC for INR 145.00 billion. That transaction turned REC into a subsidiary of PFC and created a corporate structure that already tied the two institutions together. The current merger proposal, if completed, removes the parent-subsidiary structure and replaces it with a single listed entity.

Key operating scale and FY26 financial snapshot

As of March 31, PFC’s standalone loan asset book was reported at INR 5,800 billion, while REC’s was INR 5,840 billion. FY26 results reported alongside the merger updates show both entities operating at similar revenue scale, with PFC reporting higher net profit.

Stock-market reaction and what traders are watching

On a day when the President’s approval was conveyed, PFC shares ended at INR 431.30 on the NSE, down 1%, while REC closed at INR 348.80, down 0.9% from the previous close. Separate trading-session reports around board approvals also recorded sharp moves in both stocks, reflecting how merger trades can be driven by expected swap ratios and clarity on execution steps, not only core business fundamentals. Some commentary in the market has flagged that a staggered approach to buying is being discussed by analysts because the trade now hinges on the valuation exercise and the final share exchange ratio.

Open items: swap ratio, governance, and government-company status

Several material details remain unresolved in public disclosures. The share exchange ratio has not been finalised and is to be determined by valuers appointed for the purpose. The filings also emphasise that the combined entity will remain a “Government Company” during and after the merger, and PFC has indicated the Centre may infuse capital or issue securities, if required, to preserve that status. PFC has also said its trading window for dealing in shares and listed debt securities would remain closed until further orders.

Timing, limits, and operational transition points

Officials cited in reporting said the merger was targeted to take effect from April 1, 2027, subject to regulatory and government approvals. Separately, PFC and REC indicated they expect to manage the transition into a merged entity without material constraints and that, post-merger, a single-entity exposure limit of 20% will apply to the merged entity. These transition details matter because both lenders operate with large project exposures across generation, transmission, distribution, and renewable energy. The final scheme, approvals, and swap ratio will determine how quickly the market can price the merged entity on a comparable basis.

Conclusion

The President’s approval marks a major procedural step in the merger of REC into PFC, following board actions in February and May and the Budget 2026-27 restructuring plan. The next milestones are the valuation-led share swap ratio, statutory approvals under Sections 230-232 of the Companies Act, 2013, and formal effectiveness of the scheme, after which REC would be dissolved and its assets and liabilities transferred to PFC.