The Long Wiring Diagram: How Fifteen Years of Rural Electrification Led to the PFC–REC Merger
June 30, 2026
An insider's note on why a back-office consolidation in New Delhi is, quietly, one of the most consequential power-sector reforms of the decade.
There is a particular smell to a village substation that has just been energised for the first time — hot transformer oil, fresh concrete, and the faint ozone of a system finally carrying load. Early in my career, my job was to make that moment possible from the other end of the telephone line. At Gram Power — the company that is now Polaris Grids — I spent a great deal of time liaising with government departments to secure financing for rural electrification projects. If you have ever sat across a table from a desk officer trying to reconcile a state DISCOM's working-capital headroom against a sanction from one lender while a parallel grant flowed from another, you will understand why the news out of New Delhi this month felt personal to me.
On 10 June 2026, the President of India approved the amalgamation of REC Limited — the erstwhile Rural Electrification Corporation — into Power Finance Corporation. On 28 June, the boards of both companies cleared the scheme of merger, fixing a share-exchange ratio of 88 PFC shares for every 100 REC shares, and setting a proposed effective date of 1 April 2027. The combined entity will carry a loan book north of ₹11 lakh crore. The headlines have called it a "power financing giant." The market, characteristically, shrugged — both stocks dipped on the news, because consolidation of a parent and its own subsidiary is not, on paper, a transformational event.
I want to argue that it is more interesting than the share price suggests — and to do that, you have to walk back through about fifteen years of how India actually paid for keeping the lights on.
Two lenders, one job, and a slow collision
For most of their history, PFC and REC were siblings who pretended not to be related. REC, born in 1969, was the rural specialist — its mandate was the village, the feeder, the last mile. PFC, the Maharatna, was the heavyweight financier of generation, transmission, and the broader power economy. In practice their loan books had been converging for years. When the great electrification "big push" of the last decade arrived, both institutions were standing in the same doorway.
Consider the schemes themselves, because each one is a chapter in this story:
Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), 2014. The village-electrification workhorse. Roughly 60% of eligible project cost came as a central grant; the balance was raised by DISCOMs and borrowed from financial institutions — and the financial institution doing much of that rural lending was REC. By April 2018 the government could declare every inhabited village electrified.
Ujwal DISCOM Assurance Yojana (UDAY), 2015. This is the one that bent the whole sector's balance sheet. UDAY was a debt-restructuring plan for distribution companies sitting on something like ₹4.3 lakh crore of legacy debt. It put PFC and REC squarely in the role of sector paramedics — and it imposed a working-capital lending cap (25% of the previous year's revenues) that anyone financing DISCOMs at the time learned to recite in their sleep.
Saubhagya (Pradhan Mantri Sahaj Bijli Har Ghar Yojana), 2017. The shift from the village to the household. The funding was a tripartite braid — 60% central grant, 10% DISCOM contribution, and 30% as low-interest loans from "REC or PFC." That little word or is the whole problem in miniature. Two government lenders, identical instruments, overlapping geographies, and a project officer somewhere deciding which letterhead the sanction would arrive on.
I lived inside that or. When you are trying to assemble a financing stack for a rural project, the duplication is not abstract — it is two due-diligence processes, two appraisal timelines, two sets of covenants, two relationship managers, sometimes for the same DISCOM exposure. The system worked, and it electrified hundreds of millions of households, which is a genuine civilisational achievement. But it carried friction that a single counterparty would not.
The 2019 marriage of convenience
The first formal collision came not from power-sector logic but from the fiscal calendar. In December 2018, the Cabinet Committee on Economic Affairs gave in-principle approval for PFC to acquire the government's stake in REC. By March 2019, PFC had wired ₹14,500 crore to the exchequer for the government's 52.63% holding, at ₹139.50 a share — and, not incidentally, helped the government close in on an ₹80,000 crore disinvestment target for the year.
That deal made REC a subsidiary of PFC. But it stopped there. For seven years we had the odd spectacle of a parent and a subsidiary, both government companies, both lending into the same sector, both raising debt in the same markets, often competing for the same paper — held together by a shareholding line on a balance sheet but operating as two distinct institutions with two distinct treasuries.
COVID, and the moment the case became undeniable
If 2019 created the structure, 2020 exposed why it needed finishing. When the pandemic hit, DISCOM liquidity evaporated, and the government leaned on exactly these two lenders to push roughly ₹90,000 crore (later expanded) into the distribution sector against state guarantees. To make that possible, the Cabinet had to grant PFC and REC a one-time relaxation of the very UDAY working-capital cap that had governed their lending.
Sit with that for a moment. To respond to a crisis, the government had to separately instruct two of its own institutions, and separately relax the same rule for each. Anyone watching the plumbing could see the inefficiency. The two entities were already functioning as one policy instrument; they simply were not organised as one.
From "holding company" to one institution
The years since have been the consolidation of consolidation. The Revamped Distribution Sector Scheme (RDSS) succeeded UDAY, smart metering became the watchword, and the renewable-energy build-out turned both lenders increasingly into infrastructure financiers rather than narrow power-sector NBFCs. The rural-vs-rest distinction that once justified two separate institutions had quietly dissolved.
The final push was fiscal and explicit. In the Union Budget this year, Finance Minister Nirmala Sitharaman named the goal directly: to achieve scale and improve efficiency in public-sector NBFCs, restructure PFC and REC. The board approvals followed on 16 May, the President's assent on 10 June, and the merger scheme — under Sections 230–232 of the Companies Act — on 28 June. Statutory hurdles remain: shareholder and creditor nods, regulatory clearances, and the binding condition that the merged entity must remain a government company with the state retaining majority control. Single-borrower exposure limits at banks lending to the combined giant will need attention. None of this is trivial. But the direction is set.
Why I welcome it — and the caveat I would add
Here is my honest position, informed by having worked both sides of this fence. I welcome this merger for two reasons.
First, efficiency in the financing of rural infrastructure is not a back-office nicety — it is the difference between a project reaching financial close in one monsoon season or three. A single counterparty with one appraisal process, one treasury, and one balance sheet removes a category of friction I personally spent years navigating. Lower borrowing costs for a ₹11 lakh crore entity, if the credit ratings cooperate, flow downstream to the DISCOMs and ultimately to the tariff.
Second — and this is the part that excites the engineer in me more than the financier — cleaner public financing creates room for more market-oriented, pure-engineering companies to solve the actual problem. When the capital plumbing is efficient and predictable, the competitive advantage shifts back to the people building better feeders, smarter meters, and more reliable last-mile systems. That is precisely the space where companies like the one we came up in operate. A government that finances well, rather than financing twice, is a government that lets engineering win on its merits.
My caveat is the one every veteran of this sector should voice: consolidation of lenders does not fix the underlying patient. The DISCOMs remain the structural drag — aggregate technical and commercial losses are still stubbornly high, the cost-tariff gap persists, and a merged super-lender can refinance that problem more elegantly without solving it. A bigger balance sheet is a better tool, not a cure. The reform that matters next is at the distribution end, where the losses actually live.
But tools matter. After fifteen years of two institutions doing one job, financing the same villages from two letterheads and being separately instructed through every crisis, India is finally building a single, scaled, market-credible instrument for the power sector. For those of us who once chased sanctions across two desks to light up one substation, that is worth welcoming.
The transformer oil still smells the same. The wiring diagram behind it just got a great deal simpler. (Originally published here - https://www.linkedin.com/pulse/long-wiring-diagram-how-fifteen-years-rural-led-pfcrec-kunjan-gandhi-g1yac/)