India Launches Company Bond Tokenization Pilot Demat 2.0
The Securities and Exchange Board of India and the Reserve Bank of India have launched the Demat 2.0 pilot, connecting the approximately $620 billion corporate bond market to a distributed ledger and completing fund settlements using wholesale digital rupees.
RBI Governor Sanjay Malhotra and SEBI Chairman Tuhin Kanta Pandey jointly announced this at the Global Fintech Festival in Mumbai. Corporate bonds will be issued as tokens on a distributed ledger maintained by regulated market institutions, with the ledger interfacing with wholesale central bank digital currency for atomic settlement of securities and funds. Interest and redemption will be automatically processed by smart contracts. Investors will use existing securities account identity verification, along with a Demat 2.0 securities wallet and a bank wholesale digital rupee wallet; no new independent securities accounts will be opened. The legal nature of the bonds, the issuer's payment obligations, and investor rights remain unchanged, with coupon rates and maturities the same as ordinary corporate bonds.
The first three issuances total ₹102.5 billion. State-owned power finance company REC issued ₹50 billion on September 7, with a coupon rate of 7.30% and maturing in May 2028, with a base size of ₹10 billion and a green shoe option of ₹40 billion, receiving subscriptions of approximately ₹79.5 billion from about 18 to 20 investors, including HDFC Bank, ICICI Bank, Axis Bank, and Yes Bank. Larsen & Toubro issued ₹50 billion with a three-year maturity and a coupon rate of 7.40% on September 9, with four investors subscribing, marking the first issuance by a private company. IIFL Finance issued ₹2.5 billion with a two-year maturity and a coupon rate of 9.10% on the same day, with one investor subscribing, arranged by Trust Investment Advisors, marking the first issuance by a non-government non-bank financial institution. The secondary market trading mechanism has not yet opened, and individual investor participation will be reserved for later stages.
The unified market interface has previously processed about 248 tokenized certificates of deposit, totaling approximately ₹17 trillion, of which about two-thirds were in the secondary market. Wholesale digital rupees have been used for government securities settlements and interbank borrowing. SEBI required custodians to monitor collateral creation and bond contracts using distributed ledgers as early as 2021. RBI officials also highlighted the legal, privacy, and interoperability risks of tokenization. The pilot will proceed in phases under a regulatory sandbox, with the chairman stating in May that a comprehensive assessment would take six to nine months.
Buyers are banks, mutual funds, and corporate investors that have opened dual wallets and subscribed using digital rupees, while sellers are issuers transferring registration from traditional custodial ledgers to Demat 2.0. Funds will be settled in wholesale digital rupees and tokens simultaneously, without going through a separate securities and funds system. The benefits include a reduced settlement cycle and the ability to program interest payments and redemptions, while the challenges include the still-closed secondary liquidity and retail entry—legal rights remain unchanged, but the clearing pathways and who is allowed to enter have changed.
Source: Public Information
ABAB AI Insight
India is adopting a "old accounts plus new ledger" approach, rather than creating a new unlicensed public chain for bonds. The Demat account retains existing identity verification, and the settlement currency is the Reserve Bank's wholesale digital rupee, not a retail digital rupee application. The coupon rates for REC, L&T, and IIFL are still priced like ordinary corporate bonds, indicating that the pilot is selling a settlement form, not a new credit product. The unified market interface first runs on certificates of deposit and government securities, then applies the same settlement mechanism to corporate bonds, integrating tokenization into existing market infrastructure rather than handing the market over to foreign public chains.
The capital path involves state-owned issuers anchoring first, followed by private giants and non-bank financial institutions testing high coupon small-scale issuances. Major banks like HDFC and ICICI appearing on the subscription list provide credit endorsement for the sandbox using their balance sheets. The green shoe option expanded from ₹10 billion to ₹50 billion, indicating primary demand exists, but without a secondary market, token bonds currently resemble private placements with instant settlement rather than a new asset layer for continuous trading. If trading and retail are opened later, the diversion will be from traditional corporate bond holdings and settlement fees, not the stock market.
In comparison to digital bonds in Singapore and Hong Kong, and on-chain issuances by the European Investment Bank: those often involve international investors and cross-border custody; India connects its approximately $620 billion onshore corporate bond market directly to wholesale central bank currency, aiming for fragmented liquidity in its domestic bond market rather than a dollar stablecoin corridor. The industry is in a period of transforming custody and payment from end-of-day batches to atomic settlement infrastructure.
This is a reconstruction of the industry chain. The time differences between issuance, holding, and settlement are being restructured. The mechanism is: the distributed ledger records ownership, the wholesale digital rupee records payment, the unified interface enforces synchronization, and smart contracts take over interest payments and redemptions. Whoever controls wallet access controls who can buy token bonds; legal rights remain unchanged to ensure that courts and payment obligations do not shift with the ledger, allowing banks to confidently subscribe with real capital.
ABAB News · Cognitive Law
Tokenization first changes the settlement pathway, not the legal identity of the bonds.
Wholesale central bank currency combined with old securities accounts is a more feasible upgrade for the bond market than creating a public chain.
Token bonds without a secondary market merely write bookkeeping speed into new infrastructure.