India’s Power Sector Needs ₹32 L Cr Investment by FY32; PFC, REC, IREDA to Lead Financing Push

India’s power sector is on the brink of a major transformation as the country races to meet its clean energy ambitions. Total installed capacity is projected to surge to 609 GW by March 2027 and 900 GW by March 2032, according to the National Electricity Plan (NEP).

But adding generation capacity is just the beginning. Building a reliable clean energy ecosystem will also depend on robust transmission, distribution, and storage networks — crucial links in the renewable energy value chain that ensure grid stability and prevent outages.

A new CareEdge Research report highlights that the NEP envisions a massive ₹32 lakh crore in capital expenditure between FY26 and FY32 for power generation and transmission infrastructure. The investment push also covers upgrades to transmission and distribution (T&D) networks and modernization efforts under the Revamped Distribution Sector Scheme (RDSS).

With most projects financed through a 75:25 debt-to-equity ratio, this wave of expansion is expected to unlock major lending opportunities for financial institutions — particularly power infrastructure financiers that play a key role in supporting India’s energy transition.

Power Focused Finances Loan books rose to 54% in FY25

To meet rising power demand and advance its net-zero target for 2070, India plans to add about 450 GW of new generation capacity by FY32. Alongside capacity expansion, strengthening transmission, distribution, and storage systems remains crucial to ensure grid stability and consistent renewable energy output.

Therefore, Power-focused infrastructure financiers (P-IFCs) — Power Finance Corporation (PFC), REC Ltd, and Indian Renewable Energy Development Agency (IREDA) — are expected to play a leading role in funding the sector’s transition. Improved profitability, stable margins, and controlled credit costs have strengthened their financial profiles, enabling them to support incremental debt requirements, according to CareEdge Ratings.

Between March 2020 and March 2025, P-IFCs’ loan books grew at a compound annual growth rate (CAGR) of 11.5%, driven by capacity additions in renewables and government distribution schemes such as the Late Payment Surcharge (LPS) and Liquidity Infusion Scheme (LIS). The share of renewable energy in their total loan portfolios rose from about 10% in FY20 to 17% in FY25.

Growth continued in the first quarter of FY26, with loan books expanding 14% year-on-year. With disbursements under the LPS scheme nearing completion, future growth is expected to come from RDSS and renewable energy projects. The combined share of renewable energy and distribution lending in P-IFCs’ loan books rose from 36% in FY20 to 54% in FY25, a trend CareEdge expects to persist in the near term.

While P-IFCs’ exposure to private sector projects is expected to increase gradually, maintaining strong asset quality could pose a challenge as lending moves beyond state-backed borrowers.

March 2025: PFI Decline Led By Recoveries & Loan Book 

Banks, traditionally cautious about infrastructure lending due to asset quality and long project tenures, have reduced their exposure to the power sector. P-IFCs now account for roughly 52% of total power financing as of March 2025, filling the gap alongside infrastructure-focused NBFCs and Infrastructure Debt Funds (IDFs).

Having faced asset quality issues pre-COVID, the gross non-performing assets (NPA) of P-IFCs have steadily
declined, supported by recoveries and a growing loan book. As on March 31, 2025, P-IFCs’ average gross NPA stood at 1.7% with net NPA of 0.9%, down from 7.4% and 4.0%, respectively, in March 2020. CareEde Ratings expects gross NPA numbers of P-IFCs to maintain a similar trajectory of improvement in FY26 and stabilize in FY27, remaining in a comfortable range. P-IFCs are expected to carry adequate provision cover on their stress assets.

With an improved financial risk profile and adequate capitalisation levels, the P-IFCs are expected to be key lending institutions to meet growing financing requirements in the sector. CareEdge Ratings also expects relevance of non-power-focused IFCs in the power financing space to grow with a multifold increase in their power sector exposure in the near-to-medium term.