Merger of REC with PFC hits roadblock

New Delhi, January 30

The proposed merger of REC with state-owned shadow banking firm Power Finance Corporation (PFC) has hit a roadblock and is not likely to happen in near future as it would violate RBI norms on the exposure of non-banking financial companies (NBFCs), according to sources.

As per the RBI norms, debt exposure of an NBFC in a project cannot exceed 25%. The exposure of Power Finance Corporation (PFC) and REC as a merged entity would exceed the limit of 25% in any existing project as the two firms have been financing power sector projects.

After the merger, the new entity will be required to reduce its exposure in a project to 25% which may not be feasible.

“The merger of REC with PFC is unlikely to happen in near future because of RBI norms on exposure of NBFCs. The capacity to finance a project of the merged entity would be halved. As separate entities, they can finance up to 50% in a project which would be reduced to just 25% after the merger,” one of the sources said.

In March 2019, PFC had completed acquisition of a majority stake in REC by transferring Rs 14,500 crore to the government with hope of merger of the two firms in 2019-20.

PFC chairman and managing director Rajeev Sharma said, “We have given money to the government. Now, the government would decide about the merger.” — PTI