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Budget 2026-27 Reforms: PFC, REC Restructured for NBFC Scale & Efficiency

The Union Budget 2026-27 proposes restructuring Power Finance Corporation and Rural Electrification Corporation to improve public sector NBFC efficiency. Finance Minister Nirmala Sitharaman announced a High-Level Committee on Banking for Viksit Bharat to review and align the financial sector with India's growth goals. Key proposals include a market-making framework for corporate bonds and a Rs 100 crore incentive for large municipal bond issuances exceeding Rs 1,000 crore. The budget also eases foreign investment by allowing individual Persons Resident Outside India greater access to equity in listed Indian companies.

Key Points: Budget 2026-27: PFC, REC Restructuring & Financial Sector Reforms

  • Restructure PFC & REC for scale
  • Set up Banking for Viksit Bharat committee
  • Review foreign investment rules
  • Incentivise large municipal bonds
2 min read

PFC, REC to be restructured as part of financial sector reforms in Budget 2026-27

FM Sitharaman announces restructuring of PFC & REC, banking review committee, municipal bond incentives, and eased foreign investment rules in Union Budget 2026-27.

"a High-Level Committee on Banking for Viksit Bharat will be set up... to comprehensively review the financial sector - Finance Minister Nirmala Sitharaman"

New Delhi, Feb 1

As part of the financial sector reforms announced in the Union Budget for 2026-27 on Sunday, the government proposes to restructure the Power Finance Corporation and the Rural Electrification Corporation to achieve scale and improve efficiency in the public sector NBFCs.

The vision for NBFCs for Viksit Bharat has been outlined with clear targets for credit disbursement and technology adoption.

Finance Minister Nirmala Sitharaman said in Parliament that a High-Level Committee on Banking for Viksit Bharat will be set up as part of the Budget proposal. It will comprehensively review the financial sector and align it with India's next phase of growth, while safeguarding financial stability, inclusion and consumer protection, she added.

The Indian banking sector today is characterised by strong balance sheets, historic highs in profitability, improved asset quality and coverage exceeding 98 per cent of villages in the country, she pointed out.

The Finance Minister also proposed a comprehensive review of the Foreign Exchange Management (Non-debt Instruments) Rules in the Union Budget to create a more contemporary, user-friendly framework for foreign investments consistent with India's evolving economic priorities.

The Union Budget 2026-27 also proposes a market-making framework with suitable access to funds and derivatives on corporate bond indices, along with a proposal for total return swaps on corporate bonds.

To encourage the issuance of municipal bonds of higher value by large cities, the Union Budget proposes an incentive of Rs 100 crore for a single bond issuance of more than Rs 1,000 crore. The current scheme under AMRUT, which incentivises issuances up to Rs 200 crore, will also continue to support smaller and medium towns.

To enhance ease of doing business, Individual Persons Resident Outside India (PROI) will be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme. The Union Budget also proposes to increase the investment limit for an individual PROI under this scheme from 5 per cent to 10 per cent, with an overall investment limit for all individual PROIs to 24 per cent, from the current 10 per cent.

- IANS

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Reader Comments

S
Sarah B
The focus on municipal bonds is interesting. If large cities can raise their own capital for infrastructure, it reduces the burden on the central exchequer. The ₹100 crore incentive is significant. But the real test is whether citizens will see tangible improvements in urban services from these funds.
V
Vikram M
While the reforms sound good on paper, I hope the restructuring of PFC and REC doesn't lead to job insecurity for employees. Also, "improved efficiency" often means higher tariffs for end-users. The government must ensure the primary goal remains rural electrification and last-mile connectivity, not just profits.
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Rohit P
Increasing the PROI limit from 5% to 10% is a big move to attract foreign capital. This should boost our equity markets. Sensex might touch new highs! 🚀 But we must be cautious about volatility from foreign money. The overall 24% cap seems reasonable.
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Priya S
Another committee? We have had so many committees on banking reforms. What matters is implementation on the ground. The banking sector is healthier now, true, but credit flow to MSMEs and farmers still faces hurdles. Hope this High-Level Committee delivers actionable steps, not just another report.
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Nikhil C
Good to see a continued push for ease of doing business. Simplifying FEMA rules for foreign investment is crucial. India is competing with Vietnam and others for manufacturing FDI. A contemporary, user-friendly framework can make a real difference. Jai Hind!

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