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