Budget 2026: REC and PFC at the Centre of India’s Energy Financing Overhaul

Rather than a one-off reform, the announcement positions REC and PFC as flagship institutions under the government’s larger vision for public sector NBFCs aligned with the goal of Viksit Bharat.

REC and PFC: Maharatna NBFCs Powering India’s Energy Backbone

REC and PFC are classified as public sector non-banking financial companies (NBFCs) and operate under the Ministry of Power. Over the years, they have evolved into the most important long-term lenders to India’s power ecosystem, financing generation, transmission, distribution, renewable energy, and rural electrification projects.

PFC currently holds a 52.63% promoter stake in REC, following its acquisition in 2019. Together, their combined loan book exceeds ₹11 trillion, making them systemically important institutions for India’s energy security and infrastructure expansion.

What the Budget Says About Restructuring REC and PFC

In her Budget speech, Finance Minister Nirmala Sitharaman clearly stated that the government proposes to restructure PFC and REC as a first step to achieve scale and improve efficiency among public sector NBFCs.

Importantly, the Budget does not indicate a merger of the two entities. Past attempts at consolidation were shelved due to regulatory constraints, particularly RBI norms that cap exposure by a single NBFC to individual projects. Policymakers and management have repeatedly stated that a merger would restrict borrowing and lending capacity rather than enhance it.

The current restructuring is therefore expected to focus on:

• Improving operational efficiency
• Better capital utilisation
• Stronger governance and risk management
• Enhanced technology adoption

Clear Targets Under the “Vision for NBFCs for Viksit Bharat”

The restructuring of REC and PFC falls under the newly articulated “Vision for NBFCs for Viksit Bharat”, which sets clear targets for credit disbursement and technology adoption.

For REC and PFC, this means:

• Scaling up lending to long-gestation energy and infrastructure projects
• Supporting India’s energy transition, including renewable energy financing
• Deploying advanced digital systems for risk assessment, monitoring, and efficiency

The government views these two institutions as anchor NBFCs that can demonstrate how public sector lenders can grow while maintaining financial stability.

Central Role in Energy Security and Energy Transition

REC and PFC are integral to India’s long-term energy security and stability. While the Budget did not announce separate allocations for them, they operate within the Energy sector, which has been allotted ₹1,09,029 crore for FY27.

Their financing role becomes especially critical as India accelerates investments in renewable energy and grid modernisation, expands rural and last-mile electrification, and begins funding emerging technologies such as Carbon Capture, Utilisation and Storage (CCUS). In each of these areas, REC and PFC provide long-tenure, stable capital that is essential for executing large, capital-intensive power and energy transition projects.

Financial Strength and Lending Performance

Both REC and PFC enter this restructuring phase from a position of strength.

PFC reported a net profit of ₹4,462 crore in Q2FY26, with total income rising 11.7% year-on-year. Its standalone loan book stood at ₹5,61,209 crore, with renewable energy loans growing 35% year-on-year.

REC posted a net profit of ₹4,043 crore in Q3FY26, supported by a 3.94% rise in total income. Its total loan book was ₹5.82 lakh crore vs ₹5.66 lakh crore in the same quarter.

These numbers highlight why the government sees value in strengthening, rather than merging or diluting, these institutions.