India Begins Tokenized Corporate Bond Issuance Worth 1025 Crores

India has begun issuing tokenized corporate bonds worth a total of 1025 crores for institutional investors. Retail investor participation and secondary trading will be introduced in subsequent phases.

The Securities and Exchange Board of India (SEBI) announced the 'Demat 2.0' pilot program on September 10. According to SEBI data, REC issued 500 crores to 18 institutions on September 7, L&T issued 500 crores to four institutions on September 9, and IIFL issued 25 crores to one institution the same day.

The pilot program records corporate bonds as digital tokens on a regulated distributed ledger. After tokenization, bond details such as ISIN, coupon rate, maturity, collateral, credit rating, investor rights, and issuer repayment obligations remain unchanged from traditional bonds.

SEBI clarified that Demat 2.0 is not creating new assets but changing the infrastructure for recording ownership and payments. The focus is on digitizing issuance, holding, and settlement processes rather than altering legal frameworks or investor protection regulations. Key functionality includes 'atomic settlement,' where bond transfers and payment occur simultaneously or are both canceled.

Bonds are recorded on the distributed ledger while payments are made in e₹, India's wholesale digital rupee issued by the Reserve Bank of India (RBI). Atomic settlement reduces risks associated with one party receiving bonds before payment or vice versa. The system is implemented through RBI's Unified Market Interface.

Interest and principal repayment schedules can be recorded on smart contracts, with automatic processing to investors' e₹ wallets on payment dates. However, the effectiveness of these features will need validation during actual pilot testing. SEBI's FAQ notes that scalability, cybersecurity, and settlement finality must still be assessed post-technology implementation.

Currently, issuance and asset management remain institution-focused. While peer-to-peer or account-to-account transfers through depository participants may be possible before formal secondary trading begins, payments will initially occur outside the atomic settlement network using digital rupees or traditional banking systems.

In a second phase, SEBI plans to connect existing RFQ platforms and over-the-counter reporting systems with the tokenization infrastructure. This will not involve creating dedicated token exchanges but rather integrating price discovery and order processing within existing trading channels while linking settlements to the tokenized infrastructure. Investors can continue using their existing accounts without new demat accounts or additional KYC procedures.

Demat 2.0 accounts, an extension of current accounts, will be linked to participating banks' e₹ wallets, with cryptographic keys managed by depository institutions rather than investors. Retail accessibility and market liquidity expansion remain future challenges. Social media discussions about whether separate demat accounts are required or when retail participation will begin have been raised but are not confirmed in official timelines.

Tokenized bonds do not alter the credit risk or rights associated with traditional corporate bonds. The only changes involve linking ownership records and payment processes to a distributed ledger and central bank digital currency. This pilot builds on previous coverage of India's tokenized corporate bond issuance and integration with RBI's wholesale digital rupee.

India's Demat 2.0 pilot is currently focused on institutional issuance, with retail investor participation and expanded secondary trading planned for future phases.