India's securities regulator SEBI, alongside the Reserve Bank of India (RBI), has launched "Demat 2.0," a pilot program to issue and settle corporate bonds as digital tokens on a permissioned ledger operated by depositories NSDL and CDSL. The initiative targets the country's $620 billion corporate bond market. Three issuers—REC, Larsen & Toubro, and IIFL Finance—have already raised a combined 1,025 crore rupees (~$107 million) under this framework. State-owned lender REC issued India's first tokenized corporate bond on Sept. 7, raising 500 crore rupees from 18 investors, followed by similar amounts from Larsen & Toubro and 25 crore rupees from IIFL Finance.
The system links the token ledger to the RBI's wholesale digital rupee via a Unified Market Interface, enabling atomic settlement where bonds and payments change hands simultaneously. This structure allows proceeds to reach issuers on the bidding day rather than days later, while smart contracts automate interest payments and redemptions. SEBI emphasized that these tokens retain existing legal terms, credit ratings, debenture trustees, listing rules, and investor protections. Investors hold tokens in existing Demat accounts without new know-your-customer checks. Secondary trading and retail access are planned for later phases.
This development signifies a strategic pivot toward integrating distributed-ledger technology into traditional capital markets without adopting public cryptocurrencies. By leveraging statutory depositories and the central bank's digital currency infrastructure, India is creating a controlled environment for blockchain adoption. The use of atomic settlement addresses long-standing inefficiencies in bond issuance timelines, potentially enhancing liquidity and reducing counterparty risk for institutional participants.
From an Institutional Adoption perspective, the retention of existing legal frameworks and investor protections lowers the barrier to entry for traditional market players. The phased approach, starting with wholesale issuance before introducing secondary trading and retail access, suggests a cautious regulatory stance aimed at maintaining market stability. Observers should watch how effectively the Unified Market Interface scales and whether the automation of interest payments reduces operational friction compared to legacy systems.
