India tests tokenisation of corporate bonds via Demat 2.0

India is taking a step towards modernising its bond market. The Securities and Exchange Board of India (SEBI) and the central bank Reserve Bank of India are jointly launching the Demat 2.0 programme, a pilot in which corporate bonds are issued as digital tokens on a distributed ledger. Three major companies have already issued bonds worth the equivalent of $116 million through the system, which is part of plans to modernise India’s $620 billion corporate bond market.

In brief:

• SEBI and the Reserve Bank of India are testing the tokenisation of corporate bonds via Demat 2.0.
• REC, L&T and IIFL have jointly issued ₹10.25 billion ($116 million) in bonds under the programme.
• Payment and securities settlement take place simultaneously via the central bank’s digital wholesale rupee.

What is Demat 2.0?

Demat 2.0 is a pilot project by SEBI for the next generation of financial market infrastructure. Instead of recording ownership in an ordinary database, a corporate bond is issued as a digital token on a private DLT network managed by the depository institutions.

The project does not change the legal nature of a bond. The same ISIN, issuer obligations, coupon rate, maturity and investor rights remain in force. Only the technology that handles ownership registration and settlement changes. The core terms of a bond, such as coupon rate, payment dates and redemption conditions, are recorded in the token via a smart contract.

Atomic settlement via the digital rupee

A notable feature of the programme is the way payments are made. Settlement uses the Reserve Bank of India’s wholesale digital rupee. This enables so-called atomic settlement: securities and payment change ownership simultaneously on the network, without the involvement of a separate intermediary.

The issuance itself takes place through the stock exchanges’ existing electronic bidding platform. After allotment, the bonds are credited directly to the investor’s Demat 2.0 account, which is an extension of the existing depository account and does not require a separate account. The proceeds of the issue are received by the issuing party in a CBDC wallet.

Three companies are already taking part

Three Indian companies were the first to take part in the programme. REC, L&T and IIFL jointly issued ₹10.25 billion in bonds under Demat 2.0, equivalent to around $116 million. That is a modest start relative to the total Indian corporate bond market, which is estimated at around $620 billion.

The pilot aligns with a broader international trend in which traditional financial products are converted into digital tokens on a blockchain or DLT platform. Elsewhere, too, there is extensive experimentation with the tokenisation of financial assets, such as tokenised shares on Robinhood Chain. Whether and when SEBI will further expand the Demat 2.0 programme depends on the results of the current pilot.