New Delhi, June 30 -- Two of India's largest bond issuers are becoming one. The board of Power Finance Corp. Ltd. (PFC) has approved its merger with subsidiary REC Ltd., combining two institutions that together accounted for over half of India's entire corporate bond market in FY26. On paper, a stronger balance sheet, better capital efficiency, and a single powerhouse lender for India's energy infrastructure.

But the bond market is quietly worried about exposure limits. Mutual funds can hold only 10% of a scheme's net assets in a single issuer; insurers are capped at 15%. Earlier, investors could buy bonds from two separate entities. Now it's one, meaning limits get exhausted faster, demand narrows, and yields could harden.

The merged e...