India Set Its Sights on Tokenizing $627B Worth of Corporate Bonds

• India has launched the tokenization of corporate bonds — the Demat 2.0 project.
• The relevant market segment is valued at $627 billion.
• Three companies have already raised $115 million.

The Securities and Exchange Board of India (SEBI) announced the successful launch of the Demat 2.0 pilot project, which converts corporate bonds into digital tokens on a distributed ledger and links their settlement to the wholesale digital rupee. As part of the pilot, three companies have already issued tokenized bonds totaling 10.25 billion rupees, or about $115 million.

The project was presented by SEBI Chairperson Tuhin Kanta Pandey and Reserve Bank of India (RBI) Governor Sanjay Malhotra at the Global Fintech Fest in Mumbai, and its rollout is intended to modernize the corporate bond segment, which currently stands at 53.64 trillion Indian rupees ($627 billion), or about 22.51% of the country’s total bond market.

How Demat 2.0 Works

Demat 2.0 is a new market infrastructure for the issuance, custody, trading, and settlement of corporate bonds. A bond is created as a digital token on a distributed ledger that is jointly maintained by market infrastructure participants, while the ledger itself is owned by depositories.

The system is connected to India’s wholesale CBDC via the RBI’s Unified Market Interface (UMI). This enables atomic settlement, where the bond and the funds move simultaneously, and interest payments and redemptions can be executed automatically via smart contracts.

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On the shared ledger, authorized institutions can immediately see information about bondholders, after which funds in the digital rupee can be automatically credited to their CBDC wallets on the specified date. According to SEBI, this should reduce the number of manual operations, speed up settlement, and lower the likelihood of errors.

Among the key benefits of Demat 2.0, the regulator cites:

• The issuer receiving funds on the trading day instead of waiting 2-3 days
• Potentially lower bond issuance and servicing costs thanks to automation
• Reduced file exchanges, reconciliations, and checks for financial intermediaries
• Eliminating settlement risk thanks to atomic settlement
• Investors receiving funds immediately after secondary-market transactions instead of waiting 2–3 days
• Automatic crediting of interest and redemption proceeds in the digital rupee to holders’ CBDC wallets

Three Companies Have Already Issued Tokenized Bonds

The first phase of the pilot focuses on issuing tokenized bonds. As of September 10, three companies have already issued them:

• REC Limited — on September 7, it raised 5 billion rupees ($56 million) from 18 investors. The state-owned finance company became the first issuer within the pilot
• L&T Limited — on September 9, it raised 5 billion rupees ($56 million) from four investors.
• IIFL, a private non-bank financial company, — on September 9, it raised 250 million Indian rupees ($2.8 million) from one investor

The pilot will be rolled out in stages: after the initial issuances, SEBI plans to add the ability to buy and sell tokenized bonds via existing RFQ platforms, and later — access for retail investors. At the same time, the legal nature of the bonds does not change: the issuer’s obligations, investors’ rights, requirements for credit ratings, debenture trusts, listing, and disclosure remain in force, and the tokenized securities will trade the same way as bonds in the standard demat format.

For investors, participation does not require opening a separate account or redoing KYC. Tokenized bonds will be held in an existing demat account, but the investor needs to activate Demat 2.0 with the depository and have a wholesale CBDC rupee wallet at a participating bank.

Bond tokenization is already being tested in other jurisdictions — among the examples, SEBI cites Project Helvetia III in Switzerland, Project Evergreen in Hong Kong, tokenized US Treasuries, as well as issuances by BlackRock, JPMorgan, and the Asian Infrastructure Investment Bank. 

At the same time, the Indian model differs in that corporate bonds are issued directly on a distributed ledger from the outset, ownership is recorded by state depositories, and the cash leg of the transaction is settled via the central bank’s CBDC within the existing regulated infrastructure.

The launch of Demat 2.0 comes amid broader growth in the tokenization of real-world assets in India. In particular, agritech company Arya.ag, the country’s largest agricultural warehouse operator, is launching its own L1 network based on Avalanche technology to tokenize grain, warehouse receipts, and loan status. The company stores around $2 billion in agricultural assets and each year facilitates the issuance of approximately $1.3 billion in loans.

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