REC and PFC Merger: Can the PSUs Create an Impact on the Power Sector After the Merger?

Synopsis: REC and PFC shares are in focus as the government announced their merger, with PFC remaining a government company. REC, a PFC subsidiary since 2019, will merge to scale public sector NBFCs, enhance efficiency, credit flow, and adopt new technology. Also, let’s see the UBS views on the proposed PFC–REC merger.

The shares of the REC and PFC specializing in financing power sector projects are as they have set to merge to form a Single Power Sector Financing Entity, which is an ambitious blueprint to revamp India’s financial sector.

With a market capitalization of Rs. 94,888.23 Crores on the Day’s Trade, the shares of REC Ltd jumped upto 1.47 percent, reaching a high of Rs. 378.00 compared to its previous close of Rs. 372.50.

With a market capitalization of Rs. 1,37,020.23 Crores on the Day’s Trade, the shares of Power Finance Corporation Ltd jumped upto 2.7 percent, reaching a high of Rs. 430.75 compared to its previous close of Rs. 419.20.

When Did the REC–PFC Restructuring Push Begin?

In the Union Budget 2026, Finance Minister Nirmala Sitharaman unveiled an ambitious blueprint to revamp India’s financial sector, highlighting a move toward stronger regulation, deeper markets, and more efficient public financial institutions.

The Shares of state-run lenders Power Finance Corporation and Rural Electrification Corporation surged after Finance Minister Nirmala Sitharaman proposed a restructuring of the organizations to enhance efficiency and strengthen power-sector financing. 

Latest Updates On the Restructuring Plan

REC–PFC shares were in the spotlight after the government announced the merger of the two state-owned companies. The board’s in-principle approval for the merger of PFC and Rural Electrification Corporation (REC) follows the announcement made in the Union Budget on Sunday.

REC has been operating as a subsidiary of state-owned PFC since March 2019, when PFC acquired a 52.63% stake in REC from the government for Rs. 14,500 crore, after receiving in-principle approval from the Cabinet Committee on Economic Affairs (CCEA). The PFC board noted the Budget proposal and approved the restructuring plan, ensuring compliance with the Companies Act, 2013, and other applicable laws.

In her Budget speech, Finance Minister Nirmala Sitharaman said the restructuring aims to help public sector NBFCs achieve greater scale and efficiency, in line with the vision for “Viksit Bharat,” with a focus on enhanced credit disbursement and technology adoption.

UBS views on the proposed PFC–REC merger

UBS said that PFC and REC will begin their merger process after the Finance Minister announces restructuring in the Union Budget, with REC likely to be merged into PFC through a share swap decided by independent valuation under the Companies Act. 

PFC currently owns 52.6% of REC and is 56% government-owned; at current prices, REC shareholders may receive about eight PFC shares for every nine REC shares, increasing PFC’s share count by ~34% and reducing government stake to ~42%.

UBS estimates FY27 BVPS at ₹474 (excluding merger benefits) and believes the merger could improve pricing power, boost growth, remove the holding company discount, and lead to a re-rating, with the stock trading at 0.88x FY27 P/B, while swap ratio clarity remains the key near-term trigger for REC holders.

UBS highlighted that the PFC-REC merger would create significant synergies, with a combined loan book of ₹11.5 trillion (US$125bn) and a largely similar business mix, including 29% conventional generation, 40% distribution and transmission, and 14% renewables. The overlap in customer base could boost margins and RoA by reducing internal competition, while government-backed scale could accelerate growth in renewables and infrastructure funding.

Post-merger, the government stake is expected to drop to 42% from 56% in PFC, making continued government support crucial for funding costs. UBS also noted that a solution may be needed for single borrower limits, an issue that stalled the earlier merger, but overall sees the deal as positive for growth and RoA, with further clarity awaited on the process.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

The post REC and PFC Merger: Can the PSUs Create an Impact on the Power Sector After the Merger? appeared first on Trade Brains.