Budget 2026 Calls for PFC-REC Restructure. Why This Move Is A Game Changer

In the Union Budget 2026, Finance Minister Nirmala Sitharaman laid out an ambitious plan to overhaul India's financial sector architecture, signalling a shift towards stronger regulation, deeper markets and more efficient public financial institutions. The announcements span banks, non-banking financial companies (NBFCs), specialised state-owned lenders like REC and PFC, and even the overarching foreign exchange management framework. 

Together, they point to a long-term strategy aimed at building a more resilient, growth-ready financial system for “Viksit Bharat”.

The Finance Minister announced the formation of a high-level committee to undertake a comprehensive review of the banking sector. This signals that the government is looking beyond incremental changes and is ready to re-examine the structure, regulation and functioning of banks as a whole.

Such a committee is likely to look at:

• Capital needs of public sector banks and their governance.
• Competition and consolidation between public and private banks.
• Risk management, digital transformation and cyber resilience.
• Inclusion, credit flow to priority sectors and alignment with long-term growth goals.

For banks, this could mean fresh recommendations on ownership norms, governance standards and possible consolidation or specialisation. For depositors and borrowers, the intent is to ensure a safer, more efficient banking system that can support higher, more stable credit growth.

Vision for NBFCs for Viksit Bharat
The Finance Minister also stated that a clear “Vision for NBFCs for Viksit Bharat” has been outlined, with specific targets. NBFCs play a crucial role in lending to segments that banks often reach less efficiently such as MSMEs, small borrowers, rural areas and niche sectors.

For the market, this indicates that NBFCs will remain central to India's credit story, but within a more clearly defined and tightly supervised framework aligned with the country's 2047 “Viksit Bharat” aspirations.

Proposed restructuring of PFC and REC
As part of strengthening public sector financial institutions, the Budget proposed to restructure two key infrastructure financiers: Power Finance Corporation (PFC) and REC (formerly Rural Electrification Corporation). These entities are major lenders to the power sector and increasingly to other infrastructure segments.