SKN | India Begins Tokenizing Its $620 Billion Corporate Bond Market With Digital Rupee Settlement

Key Points:

• India has launched Demat 2.0, a pilot that tokenizes corporate bonds on a permissioned blockchain and links settlement to the Reserve Bank of India’s wholesale digital rupee.
• Three issuers have already raised a combined 1,025 crore rupees, demonstrating that tokenized securities can operate within India’s existing regulated bond-market framework.
• The next stages could introduce secondary trading and retail access, potentially extending blockchain-based settlement beyond institutional bond issuance.

India has begun tokenizing its $620 billion corporate bond market, bringing distributed-ledger technology directly into regulated capital-market infrastructure through a new pilot jointly developed by the Securities and Exchange Board of India and the Reserve Bank of India. The initiative combines tokenized securities with the country’s wholesale digital rupee, positioning blockchain as settlement infrastructure rather than as a replacement for conventional financial assets.

Demat 2.0 Brings Corporate Bonds Onto a Permissioned Ledger

The program, known as Demat 2.0, allows corporate bonds to be issued as native digital tokens on a private, permissioned ledger operated by India’s statutory securities depositories, NSDL and CDSL. The framework is designed to preserve the existing legal structure of corporate bonds while changing how ownership and settlement information are recorded and transferred.

Three companies have already used the system, raising a combined 1,025 crore rupees. State-owned power financier REC became the first issuer on September 7, raising 500 crore rupees from 18 investors. Larsen & Toubro followed with another 500 crore rupees, while IIFL Finance raised 25 crore rupees.

The early transactions provide an initial test of whether tokenization can be incorporated into established institutional debt markets without creating a parallel securities system.

Digital Rupee Enables Atomic Settlement

A central feature of the pilot is its connection to the RBI’s wholesale digital rupee through a Unified Market Interface. The structure allows the tokenized bond and the corresponding payment to change hands simultaneously, creating what is known as atomic settlement.

That mechanism can reduce the settlement gap between the delivery of a security and the transfer of funds. Issuers can receive proceeds on the bidding day rather than waiting through a conventional settlement cycle, while smart contracts can potentially automate interest payments and redemptions.

For institutional investors, the significance is primarily operational. Tokenization could reduce settlement risk and simplify certain post-trade processes, although the pilot’s longer-term value will depend on liquidity, interoperability and the development of a functioning secondary market.

Existing Investor Protections Remain in Place

SEBI has emphasized that tokenization does not change the legal characteristics of the underlying bonds. The securities retain their credit ratings, maturity structures, debenture trustees, listing requirements and investor protections. Investors can also hold the tokenized bonds through existing Demat accounts without undergoing new know-your-customer procedures.

This approach distinguishes India’s initiative from efforts that create entirely new categories of digital assets. The blockchain layer is being used to modernize market infrastructure while leaving the legal and economic characteristics of the corporate bond intact.

Secondary Trading Will Test the Model

The initial pilot remains limited, making the next phase particularly important for the broader tokenization thesis. Later stages are expected to introduce secondary trading and eventually expand access toward retail investors. That transition would test whether tokenization can improve liquidity rather than simply modernize primary issuance.

India’s approach also illustrates its broader policy stance toward digital assets: private cryptocurrencies remain separate from the country’s financial infrastructure strategy, while blockchain and the digital rupee are being developed under direct regulatory control.

For crypto investors and institutional market participants, Demat 2.0 provides a significant real-world test of regulated real-world asset tokenization. The next indicators will be secondary-market activity, settlement efficiency, institutional participation and whether the model can scale beyond the initial 1,025 crore rupees without fragmenting India’s existing bond market.