Budget 2026: Govt to restructure public sector PFC, its arm REC, as part of broader vision for NBFCs

Finance minister Nirmala Sitharaman today announced the restructuring of state-owned Power Finance Corp. (PFC) and its arm REC Ltd (formerly Rural Electrification Corp.), as part of the government’s broader vision for non-banking financial companies (NBFCs).

“The vision for NBFCs for Viksit Bharat has been outlined with clear targets for credit disbursement and technology adoption. In order to achieve scale and improve efficiency in the public sector NBFCs, as a first step, it is proposed to restructure PFC and REC,” Sitharaman said in her speech to announce the Budget for 2026-27.

The proposal to restructure these public sector undertaking (PSU) NBFCs will help improve operational efficiency and capital utilization, enabling them to support critical sectors such as infrastructure, energy transition, and rural electrification more effectively, said Kapil Garg, managing director of Mufin Green Finance.

“These moves will enhance credit flow in long-gestation sectors that are vital for India’s development,” he added.

The ‘Maharatna’ public sector NBFCs, which are controlled by the power ministry, provide long-term financing and loans to meet the requirements of India’s power sector.

In May 2019, PFC acquired a majority 52.63% stake in REC and is currently categorised as a promoter of the latter. The two lenders were expected to be merged in FY20; however, the merger fell through, given the Reserve Bank of India’s caps on financing by a single NBFC lender to an individual project.

Then, REC chairman and managing director Vivek Kumar Dewangan had, in May 2023, told Moneycontrol that a merger is not good for either of the companies because it will limit the lending and borrowing capacity of the entities. “A merger limits our borrowing capacity, which in turn restricts our lending capacity. So, a merger is not an option anymore,” he had then said.

As such, the Budget announcement today did not detail what the restructuring would entail.

“Strengthening public sector NBFCs through better scale, governance and technology adoption is critical to ensuring that long-term capital reaches infrastructure and priority sectors efficiently, without compromising on financial stability or consumer protection,” Varun Gupta, chief executive officer, Groww Mutual Fund, said. “Thoughtful execution” of these reforms can materially improve credit delivery and resilience across the financial ecosystem," he added.

Shares of state-run lenders soared by more than 6% after the Budget announcement. PFC’s stock later pared some gains to trade 1.3% higher at ₹384.35 on the National Stock Exchange (NSE), whereas those of REC were 0.4% higher at ₹365.75. Both stocks underperformed in 2025, ending the year 20-30% lower.

PFC posted a 2% on-year rise in its net profit to ₹4,462 crore for Q2FY26. Total income was 11.7% higher at ₹14,756 crore. REC posted an over 9% increase in net profit to ₹4,414 crore, led by a 10.6% rise in total income to ₹15,162 crore.

In an October 2025 report, Morgan Stanley had said that PFC and REC are likely to post a compound annual growth rate (CAGR) of about 12% for loans given between FY25 and FY28, while delivering an average return on equity of 17-19%. Morgan Stanley added that the risk-reward outlook remains attractive, citing modest FY27 valuations of 5-6 times earnings, which support sustainable low- to mid-teens loan growth and a dividend yield of 3.8-4.5%.