India Launches Tokenized Corporate Bond Pilot with Digital Rupee Settlement

India begins tokenizing corporate bond market

India has launched a new pilot program called Demat 2.0 to issue and settle corporate bonds using blockchain technology. Blockchain is a digital ledger used for recording transactions. The Securities and Exchange Board of India (SEBI) is leading the project, which uses the central bank's digital rupee for payments.

This move integrates tokenization into the country's traditional financial system. Tokenization is the process of turning a physical or financial asset into a digital token on a blockchain. This pilot allows bonds to be issued as digital tokens on a ledger managed by regulated institutions.

Highlights of the Demat 2.0 pilot

• The project uses the Reserve Bank of India’s (RBI) wholesale digital rupee for settlements.
• Corporate bonds are issued as digital tokens while keeping their original interest rates and maturity dates.
• Three major companies have already raised a combined ₹1,025 crore through the new system.
• The system aims to reduce settlement risks by linking bond delivery with payment.

How the tokenization system works

Demat 2.0 connects a ledger of tokenized bonds with the RBI’s digital rupee through a Unified Market Interface. This setup allows the bond and the money used to pay for it to move at the same time. In traditional systems, payment and delivery are often handled separately, which can lead to risks if one side of the trade fails.

The pilot also uses smart contracts to manage corporate actions. Smart contracts are self-executing programs that can automatically handle interest payments and bond redemptions.

Firms participating in the initial phase

Several large organizations have already used the system to raise funds. REC, a state-owned power-sector lender, raised ₹500 crore (approximately $56 million). The engineering and construction firm Larsen & Toubro also raised ₹500 crore. Additionally, the non-bank lender IIFL Finance raised ₹25 crore.

Why this matters for the Indian financial market

The pilot shows a shift toward using regulated digital assets within India's existing financial infrastructure. While Indian regulators have remained cautious about private cryptocurrencies, they are now bringing blockchain technology into systems controlled by banks and central authorities. This approach allows for faster and safer settlements within a controlled environment.

Future plans for retail and secondary trading

The project is expected to expand in later stages. Future phases of the pilot will likely introduce secondary-market trading, where investors can buy and sell the tokenized bonds after they are issued. There are also plans to eventually allow retail investors to access these tokenized assets.

Sources

• CoinDesk