REC-PFC merger 2026: 88:100 swap, ₹11 lakh cr

Merger approval puts two PSU lenders on one track

REC Limited and Power Finance Corporation Limited (PFC) have approved a scheme of merger that will absorb REC into PFC, subject to shareholder, creditor, and regulatory clearances. The boards cleared the scheme on June 28, 2026, positioning the combined entity as a larger power-sector focused financing institution. The stated objective is to create a dominant power sector financing platform with an aggregate loan book of over ₹11,00,000 crore. The scheme also specifies that the merged company must continue to be classified as a “Government Company”, with the Government of India retaining majority voting rights.

The proposal follows a longer restructuring path that has been unfolding since the Union Budget 2026-27 push to achieve scale and improve efficiency in public sector non-banking financial companies (NBFCs). It also comes nearly seven years after PFC acquired the government’s majority stake in REC and the two started operating as holding and subsidiary companies.

What the boards approved on June 28, 2026

The merger scheme approved by both boards provides for the amalgamation of REC into PFC under Sections 230-232 of the Companies Act, 2013. Once the merger becomes effective under applicable law, all assets and liabilities of REC will be transferred to PFC, and REC will stand dissolved in line with the legal process described in company filings.

The approvals are not yet final. The scheme requires multiple layers of consent, including approvals from shareholders and creditors, and clearances from regulatory authorities. The scheme also includes a condition that the merged entity should retain its government-company status, with the Government of India continuing to hold majority voting rights.

Share exchange ratio: 88 PFC shares for 100 REC shares

A central element of the merger is the share exchange ratio. The boards approved an exchange of 88 equity shares of PFC (face value ₹10 each, fully paid) for every 100 equity shares of REC (face value ₹10 each, fully paid). The filings also state that there is no cash consideration involved in the transaction.

This structure makes the merger a pure share-swap. For investors, the effective transition will depend on the scheme becoming effective after the required approvals, and on the operational steps for transferring and recording share entitlements.

Regulatory and government approvals: “Government Company” condition stays

Company communication around the restructuring emphasises that the merged entity must remain a “Government Company” under the Companies Act, 2013 and other applicable laws. This condition is linked to the Government of India retaining majority voting rights post-merger.

Separately, REC disclosed that the Ministry of Power, through a June 10, 2026 letter, conveyed approval of the competent authority (the President of India) for the merger proposal of REC into PFC. In another related update, the board meeting on May 16, 2026 reserved the merger proposal in view of the President of India’s approval.

How the REC-PFC consolidation has evolved since 2019

The merger builds on the earlier change in ownership between the two entities. In March 2019, state-owned PFC completed the acquisition of the government’s majority stake of 52.63% in REC for ₹14,500 crore. After this acquisition, PFC and REC operated as holding and subsidiary companies.

In early 2026, PFC disclosed that its board had approved an in-principle restructuring in the form of a merger of PFC and REC, following the Budget 2026 proposal to restructure the two public-sector NBFCs. That in-principle decision was framed around scale and efficiency, with the explicit requirement that PFC should continue to remain a government company post-merger.

Combined loan book: over ₹11,00,000 crore

The boards have positioned the merger as a step that creates a larger financing institution for the power sector. The combined entity is expected to have an aggregate loan book of over ₹11,00,000 crore, according to the merger scheme description.

The stated rationale is to create the government’s principal institution for implementing power sector reforms and flagship programmes. The details provided focus on the institutional role and size of the financing platform rather than providing new product-level or segment-level targets.

Fundraising alongside the merger: bond issue proposal of ₹1,40,000 crore

Alongside the merger scheme, the board approved a proposal to raise funds through private placement of unsecured or secured non-convertible bonds or debentures of up to ₹1,40,000 crore. This is separate from the share-swap merger mechanics, but it adds an important financing lever for the institution.

The disclosure does not specify the timeline, pricing, or maturity mix for the bond or debenture programme. It only indicates the board-approved ceiling and the route, which is private placement.

Market moves cited in filings and reports

Market reaction cited in reports around the earlier in-principle approval indicated modest declines in both stocks on the day referenced. PFC shares on BSE closed at ₹419.20, down 1.01%, while REC shares fell 2.51% to ₹372.50.

These price moves were reported in the context of the in-principle merger announcement. The June 28, 2026 scheme approval and the subsequent steps will still depend on approvals and legal effectiveness under Sections 230-232.

Key facts table

What happens next: approvals and effectiveness

The scheme’s next steps are process-heavy. It requires approvals from shareholders and creditors, and clearances from regulatory authorities, before the merger can become effective. Once effective, REC’s assets and liabilities will transfer to PFC, and REC will be dissolved as per the provisions cited.

The available disclosures also reflect multiple government and board-level checkpoints already completed, including communication that the President of India approved the merger proposal and that boards authorised senior leadership to pursue formal approvals. The next set of announcements is likely to revolve around the formal approval process, creditor and shareholder steps, and any regulatory directions tied to implementation.