India’s capital markets are taking a tangible step toward blockchain-based settlement. The country’s securities regulator and central bank have launched a pilot that enables corporate bonds to be issued and held as tokenized assets, with settlement linked to the Reserve Bank of India’s (RBI) wholesale central bank digital currency (CBDC).
On Thursday, the Securities and Exchange Board of India (SEBI) said its “Demat 2.0” initiative allows corporate bonds to be issued and recorded as digital tokens on a distributed ledger maintained by India’s statutory depositories. The system is designed to connect to the RBI wholesale CBDC using the central bank’s Unified Market Interface (UMI).
Key takeaways
- SEBI’s Demat 2.0 pilot tokenizes corporate bond issuance and ownership records within India’s regulated depository framework.
- Settlement is tied to the RBI wholesale CBDC via the UMI, with SEBI describing “atomic settlement” to reduce timing mismatches between cash and bonds.
- The first issuers—REC, Larsen & Toubro (L&T), and IIFL—collectively raised 10.25 billion rupees (about $107 million) across multiple transactions.
- SEBI says issuers can receive funds on the day of bidding rather than the typical two- to three-day delay.
- Investors can use existing Demat accounts, but must enable Demat 2.0 through their depository and have a wholesale CBDC wallet with a participating bank for settlement.
The Demat 2.0 pilot and the first set of tokenized bond issuances
SEBI said Demat 2.0 enables tokenized corporate bonds to be issued and held on a distributed ledger managed by statutory depositories. The pilot architecture is intended to keep corporate bond legal issuance and investor protections within the existing framework, while modernizing the recording and settlement layer.
Three companies participated in the initial launch. SEBI reported that public-sector lender REC raised 5 billion rupees from 18 investors on Monday. Engineering and construction conglomerate Larsen & Toubro (L&T) followed with a separate 5 billion rupees issuance from four investors on Wednesday. Non-bank lender IIFL also issued 250 million rupees to a single investor on the same day.
In practical terms, SEBI said the infrastructure is designed to accelerate the payment window. Instead of funds arriving two to three days after bidding, the regulator claims issuers receive funds on the day of bidding. SEBI linked this improvement to “atomic settlement,” describing it as a mechanism that removes delay between transfers of money and transfers of bonds.
The regulator also pointed to smart contracts as a way to automate key cash-flow events associated with the bonds, including interest and redemption payments. While the details of the smart-contract logic were not elaborated in the announcement, SEBI’s emphasis is clear: the pilot aims to streamline both settlement timing and payment operations.
From a smaller REC test to a broader first phase
The pilot expands beyond what was initially described in earlier reporting. In August, Reuters said India planned to test tokenized corporate bonds through an REC issuance of less than 5 billion rupees with selected investors. The subsequent SEBI update indicates the launch went further than that preliminary plan.
SEBI’s description of the first phase shows that the pilot moved past the original REC-only concept to include two additional issuers. With REC at 5 billion rupees and the combined additions of L&T and IIFL, the first-phase total rose to more than double the originally reported amount expectation for REC.
SEBI also said the issuances in the first phase remain ongoing. It described later phases as building out functionality, including secondary trading using existing request-for-quote platforms and opening access to retail investors. The regulator added that experience from the pilot would inform any wider rollout.
How investors access tokenized bonds without changing Demat structure
A key question for tokenized-market pilots is whether investors must rebuild their infrastructure. SEBI said tokenized bonds can be held in existing Demat accounts without opening a separate account or completing new KYC processes.
However, SEBI noted that participation still requires enablement of Demat 2.0 through an investor’s depository. On the settlement side, investors must also maintain a wholesale CBDC wallet with a participating bank to receive and settle payments under the pilot’s CBDC-connected workflow.
SEBI further characterized the approach as a combination of three elements: (1) bonds issued “natively on a distributed ledger,” (2) ownership records maintained by statutory depositories, and (3) settlement conducted in CBDCs within existing regulated market infrastructure. The regulator’s framing suggests the pilot is meant to reduce friction between new settlement mechanics and the established compliance and custody system investors already rely on.
What remains unchanged: legal status and investor protections
Tokenization can raise concerns about legal enforceability and consumer safeguards, especially when settlement technology shifts from traditional rails to blockchain-linked workflows. SEBI addressed this directly by stating that tokenization does not alter the legal status of the bonds, repayment obligations, or investor protections.
That clarification matters for market participants evaluating risk: it implies the pilot is focused on changing how bonds are issued, recorded, and settled—rather than redefining the underlying contract or regulatory rights attached to the instruments. For issuers, the pitch is largely operational (faster funding and potential payment automation). For investors, the emphasis is on continuity of rights even as settlement infrastructure evolves.
As the first phase continues, the market will be watching whether SEBI’s promised advantages—same-day funding, atomic settlement behavior, and smooth automation of interest and redemption—hold up in practice. The next milestone will likely be how Demat 2.0 is extended toward secondary trading and broader investor access, and whether the pilot’s approach can scale without creating new operational bottlenecks.
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