India began tokenizing corporate bonds with settlement in central bank digital rupee, in a pilot that begins to bring distributed ledger technology to a market estimated at about US$ 620 billion. Demat 2.0 was launched on Thursday (10) by the Securities and Exchange Board of India (SEBI), together with the Reserve Bank of India (RBI).
The system allows corporate bonds to be issued as digital tokens on a private, permissioned network managed by market infrastructure institutions. Tokenization does not change interest, maturity, risk classification or investor rights: the bond remains legally the same financial asset, but its registration and transfer now take place on DLT-based infrastructure, distributed ledger technology.
The first transactions have already moved ₹1,025 crore, about US$ 115 million, in issues by REC, Larsen & Toubro and IIFL Finance. REC and L&T each raised ₹500 crore, while IIFL raised ₹25 crore.
Digital rupee settles bond and payment at the same time
One of the main elements of Demat 2.0 is the integration of tokenized bonds with the RBI's wholesale digital rupee, India's central bank digital currency, or CBDC. Participating investors link their existing Demat account to a CBDC wallet provided by their bank.
The framework enables so-called atomic settlement: the transfer of the bond and the payment in digital rupees are executed as a single transaction. If one of the two steps fails, the other is not completed either, reducing the risk of one party delivering the asset without receiving the corresponding payment.
Smart contracts will also be able to automate processes such as interest payments and bond redemption, reducing reconciliations and manual instructions between issuers, banks and depositories. Depository institutions remain responsible for the official record of asset ownership.
Pilot foresees secondary trading and retail access
SEBI divided the project into three stages. The first is focused on the issuance of tokenized bonds and foresees initially institutional participation. In the second, the regulator intends to enable trading in the secondary market and expand access to retail investors.
A third phase could extend the infrastructure to other regulated entities and assess its application to new financial instruments. The pilot operates within SEBI's regulatory sandbox and will serve to test cybersecurity, scalability, settlement and operational functioning before the eventual creation of broader rules. The regulator has not yet set dates for these next stages.
