India is considering a proposal to combine REC Limited (NSEI:RECLTD) and Power Finance Corporation Limited (NSEI:PFC) according to people familiar with the discussions, as it seeks to raise funds to bridge a budget gap. The first phase of the deal will see REC acquiring a majority stake in Power Finance valued at $2.5 billion possibly by the year ending March 2019, the people said, asking not to be named as the talks aren't public. Subsequently, the plan is to merge the subsidiary with REC, a departure from the original plan to keep their operations separate.

REC has informed the power ministry that a combined entity will be complementary as it would eliminate competition among them in raising funds or finding customers, according to the people involved in the plan. The sale of stake in Power Finance, expected to fetch about $2.5 billion based on the Power Finance's latest closing price.