OVERLAP AND JURISDICTION: THE BOUNDARY DISPUTE BETWEEN SEBI AND RBI IN REGULATING SYSTEMIC NBFCs

The Non-Banking Financial Company (NBFC) sector plays a significant role in India's financial system by providing credit, facilitating investments and supporting financial inclusion. However, the growing size and interconnectedness of certain NBFCs have raised important questions concerning regulatory jurisdiction and financial stability. The regulatory framework governing NBFCs in India involves two principal authorities: the Reserve Bank of India (RBI), which primarily regulates their financial activities, prudential standards and systemic stability, and the Securities and Exchange Board of India (SEBI), which regulates securities markets, disclosure requirements and investor protection. The jurisdictional overlap becomes particularly significant in the case of systemically important NBFCs, especially those classified under the Upper Layer of the RBI's Scale Based Regulation framework. These entities may raise funds through Commercial Papers (CPs), Non-Convertible Debentures (NCDs) and other market instruments while simultaneously undertaking lending, borrowing and asset-management activities regulated by the RBI. Consequently, a single financial institution may be subject to different regulatory priorities depending on the nature of its activities. This research examines the legal and institutional boundaries between RBI and SEBI in regulating systemic NBFCs. It analyses the statutory framework, the regulation of money-market and capital-market instruments, the consequences of financial distress and the challenges arising from fragmented regulatory supervision. It argues that although the two regulators exercise legally distinct powers, inadequate coordination can create regulatory gaps, compliance burdens and uncertainty during financial crises. The paper proposes a coordinated regulatory framework based on information-sharing, supervisory cooperation, clear allocation of responsibilities and an integrated crisis-resolution mechanism.