Power Finance Corp and REC Ltd Announce Proposed Merger to Boost Renewable Funding
•February 11, 2026
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Why It Matters
The deal could unlock critical capital for India’s renewable rollout, accelerating project execution and grid integration, while potential cost pressures may affect overall financing dynamics.
Key Takeaways
- •Merger combines PFC and REC NBFCs.
- •Increases underwriting capacity for large renewable projects.
- •Helps refinance overseas dollar bonds at competitive rates.
- •May raise funding costs due to reduced NBFC competition.
Pulse Analysis
India’s renewable expansion has long been hampered by financing bottlenecks, especially for large‑scale, capital‑intensive projects. The Reserve Bank of India caps single‑counterparty exposure at 30% of Tier‑1 capital, forcing developers to split debt across multiple lenders. Public‑sector NBFCs like Power Finance Corporation and REC Ltd have become pivotal sources of power‑sector credit, but their individual balance‑sheet limits often restrict the size of loans they can underwrite, leaving a gap for multi‑billion‑dollar renewable ventures.
The PFC‑REC merger directly addresses this gap by consolidating two sizable loan books that already allocate 15‑25% of assets to renewables. A larger combined capital base expands underwriting capacity, allowing the new entity to fund complex, high‑ticket projects and to refinance existing overseas dollar‑denominated bonds at more attractive rates. This enhanced liquidity is expected to smooth the financing pipeline for both solar and wind farms, as well as for critical transmission‑grid upgrades that improve grid connectivity—a known bottleneck for renewable integration.
While the merger promises greater funding availability, it also consolidates market share within the power‑focused NBFC segment, potentially nudging up borrowing costs as competition wanes. Stakeholders will watch how the entity balances its state‑mandated mandate to offer competitive rates against the natural tendency for pricing power in a less fragmented market. Overall, the transaction signals a strategic push to accelerate India’s clean‑energy goals, but investors should monitor cost dynamics and regulatory responses that could shape the sector’s financing landscape.
Deal Summary
State-run lenders Power Finance Corporation (PFC) and REC Ltd have announced a proposed merger aimed at enhancing financing access for India's renewable energy projects. The combined entity would have a larger capital base, potentially easing funding constraints for large‑ticket renewable projects and transmission‑grid capex. CreditSights expects the merger to improve underwriting capacity and refinancing options.
Article
Source: ET EnergyWorld (The Economic Times)
PFC‑REC merger may ease funding access for renewable firms: CreditSights
PTI – Published Feb 11 2026, 04:16 PM IST
The merger of Power Finance Corporation and REC Ltd is set to boost funding for India's renewable energy projects.
New Delhi: The proposed merger of state‑run lenders Power Finance Corporation (PFC) and REC Ltd is expected to improve financing access for India's renewable energy developers, particularly for large and complex projects, CreditSights said on Wednesday.
PFC and REC, both public‑sector non‑banking financial companies (NBFCs) focused on power‑sector financing, have loan books broadly split across renewables (15‑25 %), transmission and distribution (40‑45 %), and conventional power generation (25‑30 %).
“We believe financing should be more readily available for the renewable companies' large‑ticket‑size complex projects that were more challenging to individually fund in the past, given single‑counterparty lending limits prescribed by the RBI (30 % of Tier 1 capital for PFC and REC),” CreditSights, a Fitch Solutions company, said.
The merger will enable larger underwriting capacity and facilitate refinancing of sizeable debt, including overseas dollar bonds, at competitive rates for renewable‑energy companies.
The combined entity is likely to have a stronger capital base, potentially easing funding constraints for large‑ticket renewable projects that were earlier more difficult to finance individually due to Reserve Bank of India (RBI) norms on single‑borrower exposure. Currently, single‑counterparty lending is capped at 30 % of Tier‑1 capital for both PFC and REC.
“The merger could also improve financing availability for larger transmission‑grid capex programmes, translating into improved grid connectivity for renewable projects; a major pain point for the renewable companies,” it said.
However, the merger may marginally reduce competition in the power‑focused NBFC space, potentially leading to some upward pressure on funding costs.
“While the merger could result in an uptick in funding costs as competition will be reduced in the NBFC space, we expect the impact on the renewable players to be manageable, with both NBFCs bound by their state mandate to lend to the power sector at competitive costs,” CreditSights added.
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