$61 Billion Debt Merger Set to Bolster India’s Credit Market

New Delhi, Feb 16: The Indian government’s plan to merge state-owned Power Finance Corp. (PFC) and REC Ltd. is expected to strengthen financing for large scale power projects and inject liquidity into the country’s credit market, analysts say.

The combined entity will hold outstanding rupee bonds worth 5.5 trillion ($61 billion), representing nearly 10% of India’s local currency bond market. The merger is likely to free up a portion of these bonds for reinvestment, as regulatory limits on fund exposure to a single AAA-rated issuer will effectively be halved.

Enabling Larger and Complex Power Projects
The merger is also expected to ease financing constraints for major power projects, which have historically faced lending caps due to limits on individual project exposure. With a larger combined pool of resources, the ceiling for loans to single projects could increase, making it easier to refinance existing obligations and fund more complex initiatives.

Power Finance and REC, both major lenders and bond issuers for the power sector, had outstanding loan assets of 5.7 trillion and 5.8 trillion rupees, respectively, as of December 31. With board approval now in place, fund managers may adjust their holdings gradually to comply with group-wide exposure limits, with possible regulatory exemptions for existing investments.

Implications for the Broader Credit Market
Market experts say the merger could boost demand for alternative AAA-rated papers in India, helping maintain lower yields across high-rated debt instruments. Analysts at Creditsights note that this step may enhance credit flow to key economic drivers while supporting the government’s long-term goal of transforming India into a developed economy by 2047.

Rajeev Radhakrishnan, CIO for fixed income at SBI Funds Management, highlighted that the merger is a “welcome jolt” for India’s 58 trillion rupee credit market, potentially accelerating capital availability for power grid upgrades and clean energy expansion.

Sub-title: Combined PFC-REC entity expected to unlock liquidity, enable bigger power projects, and stabilize AAA bond yields.