PFC-REC Merger Gets Board Nod; Combined Loan Book To Exceed ₹11 Lakh Crore

Two of India's largest state-owned power sector financiers are set to become one. The boards of Power Finance Corporation (PFC) and REC Ltd. met on Sunday and cleared the merger scheme, with REC merging into PFC. The deal will create India's largest power sector financing institution, with a combined loan book of more than ₹11 lakh crore.

The exchange ratio has been fixed at 88 equity shares of PFC for every 100 equity shares of REC held as of a record date that will be announced separately. REC shareholders' existing holdings will be cancelled upon completion of the merger, with PFC shares issued in their place.

What Approvals Are Still Needed

Board approval is only the first step. The merger now requires approvals from the shareholders and creditors of both the companies, stock exchanges, the Securities and Exchange Board of India (SEBI), the National Company Law Tribunal (NCLT) and other statutory authorities. The merged entity has to continue to remain a government company with the Government of India holding majority voting rights. The merger is proposed to take effect from 1 April 2027, provided all approvals are received by early 2027.

PFC currently owns a 52.63% stake in REC, while the central government holds 55.99% in PFC directly. The merger will collapse this holding-subsidiary structure into a single consolidated balance sheet.

Background To The Deal

The merger was first flagged by Finance Minister Nirmala Sitharaman in the Union Budget presented earlier this year, when she announced plans to restructure the two power financiers to improve efficiency and scale. Both stocks had jumped sharply on that announcement.

Deloitte Touche Tohmatsu India is the transaction and tax adviser, while Cyril Amarchand Mangaldas is the legal adviser for both entities. RBSA Valuation Advisors and Ernst & Young Merchant Banking Services prepared the joint valuation reports. SBI Capital Markets provided the fairness opinion for PFC and Nuvama Wealth Management for REC.

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What Investors Should Consider

According to analysts, the merger changes the nature of the investment case for both stocks. With the scheme approved, the trade is no longer purely about power financing fundamentals but also about swap ratio mechanics, timing and regulatory execution.

PFC is seen as the cleaner option given its role as the consolidation anchor, while REC carries more event risk as a merger-arbitrage play. Analysts suggest that fresh positions be built gradually rather than chasing the announcement, given that regulatory completion is still some distance away.