REC merger into PFC: Board seeks President nod in 2026

What REC’s board decided on May 16, 2026

REC Limited has disclosed the outcome of its Board of Directors meeting held on May 16, 2026, placing the proposed merger of REC into Power Finance Corporation Limited (PFC) into the next approval stage. The board reserved the merger proposal for the approval of the Hon’ble President of India. The disclosure was made pursuant to Regulation 30 of SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, and followed an earlier board meeting notice dated May 13, 2026.

The board’s decision is a formal step in a process that has been under discussion since the Union Budget 2026-27 announcement on restructuring public sector NBFCs. While the merger structure and timeline are still under deliberation, REC’s filing clarifies the immediate action point: seeking the President’s approval for the merger proposal.

Merger route: Sections 230-232 of the Companies Act

The proposed merger is being pursued under Sections 230-232 of the Companies Act, 2013, which govern compromises, arrangements, and amalgamations. REC’s filing states that, once the merger is duly approved under applicable law and becomes effective, all assets and liabilities of REC will be transferred to PFC. REC would then stand dissolved in accordance with the relevant provisions of the Companies Act, 2013.

The company also made it clear that the merger remains subject to the final approval of the board and receipt of all other requisite consents, approvals, and permissions. This keeps the process explicitly conditional on statutory and regulatory clearances.

CMD authorised to approach the President of India

At the May 16 meeting, REC’s board authorised the Chairman and Managing Director (CMD) to make an application to, and seek the approval of, the Hon’ble President of India for the proposed merger. This authorisation is central to moving the file through the government approval process.

The filings emphasise that the proposal has not reached an implementation stage. Instead, the board resolution enables administrative and legal steps required to obtain the necessary approval before any scheme is finalised and executed.

Share exchange ratio: to be determined by valuers

A critical commercial element of any merger is the share exchange ratio. REC has stated that the share exchange ratio will be determined by valuers duly appointed for this purpose. At this stage, no ratio has been disclosed, and the companies have indicated that valuation experts will be appointed as part of the execution framework.

Separate reports and filings also note that external consultants, valuation experts, and legal advisers will be appointed to ensure structured, timely, and compliant execution, subject to regulatory approvals.

Condition: merged entity must remain a government company

REC’s board resolution includes a key condition: the merged entity must maintain its status as a ‘Government Company’. The filing adds that this may be ensured, including through issuance of necessary securities to, or infusion of capital by, the Central Government, in accordance with applicable law.

In broader merger communications, the companies have also stated that the Government of India will retain control, including the right to appoint and remove board members, reinforcing the government-company requirement.

How this links to the Union Budget 2026-27 plan

The merger proposal traces back to the Finance Minister’s announcement on February 1, 2026, under paragraph 43 of the Union Budget 2026-27 speech, proposing restructuring of PFC and REC. Subsequent filings described the goal as improving scale and efficiency among public sector NBFCs and strengthening financing capacity for India’s expanding power ecosystem.

Both PFC and REC have said the combined entity would benefit from a stronger balance sheet, improved capital efficiency, and operational synergies. They also linked the consolidation narrative to India’s longer-term energy transition and investment needs, including Viksit Bharat 2047 goals.

Prior board steps and current holding structure

The boards of PFC and REC had given in-principle approval on February 6, 2026 to combine the two entities while retaining the merged entity’s government company status. A joint regulatory filing dated February 12, 2026 outlined the strategic framework for implementation.

The ownership structure is also a key context point. PFC already holds a 52.63% equity stake in REC after acquiring it in 2019, making REC its subsidiary. Another report notes that the government had allowed PFC to acquire its stake in REC for ₹14,500 crore in March 2019.

Snapshot: key disclosed facts so far

Other board item: Chief Compliance Officer appointment

REC’s board also appointed Mr. Mohammed Azaz Ali as Chief Compliance Officer, effective May 17, 2028. The appointment is stated to be until his superannuation on June 30, 2028. This is a separate governance disclosure alongside the merger-related decisions.

Financial and operational context disclosed in reports

Market filings and reports around the merger have highlighted the size of the two lenders and their ability to raise additional borrowings. One report stated that, given current borrowing levels, there is sufficient headroom to raise additional loans if required.

A separate report cited loan asset books as of September-end: PFC’s standalone loan asset book at ₹560,000 crore and REC’s loan book at ₹580,000 crore. Another disclosed item in the broader set of filings was that REC’s board approved a third interim dividend of ₹4.00 per equity share for FY 2025-26, representing 40% on the face value of ₹10 per share.

What matters for investors and the sector

The most immediate takeaway is procedural: REC has moved to seek the President of India’s approval, while the share exchange ratio and final merger scheme are still to be worked out. The conditions around maintaining government-company status add another layer to the scheme design, because the merged entity’s classification must remain intact under applicable law.

For the power sector, the filings position the consolidation as a step toward creating a single, larger government-controlled financing institution for the electricity value chain. For investors, the key open variables remain the final scheme structure, valuation outcomes, and the sequence of approvals needed before the merger can take effect.

Conclusion

REC’s May 16, 2026 board outcome sets the merger process into a formal approval pathway by reserving the proposal for the President of India’s approval and authorising the CMD to proceed with the application. The share exchange ratio will be determined by appointed valuers, and the merged entity must retain its ‘Government Company’ status. The next disclosed milestones are expected to depend on the appointment of external advisers and the receipt of requisite statutory and regulatory approvals before a detailed scheme is finalised.