India has launched Demat 2.0, a pilot for tokenized corporate bonds settled in the digital rupee, with significant early participation.
India has launched a pilot project called Demat 2.0 for issuing tokenized corporate bonds settled using the digital rupee, as announced by the Securities and Exchange Board of India (SEBI) on September 10. This initiative is a collaboration with the Reserve Bank of India (RBI) and was highlighted at the Global Fintech Fest in Mumbai.
The project involves several key players, including depositories NSDL and CDSL, stock exchanges NSE and BSE, and banks like HDFC and ICICI, along with the National Payments Corporation of India.
At the announcement, three companies had already utilized the new system to issue bonds worth a total of 10.25 billion rupees (around $107 million). Both REC and Larsen & Toubro each raised 5 billion rupees ($52.2 million), while IIFL obtained 250 million rupees ($2.6 million).
Settlement Mechanism
Demat 2.0 combines bond ownership records with the RBI's wholesale digital rupee via a distributed ledger. This is executed through the Unified Market Interface, which links securities transactions with payment systems, allowing for instantaneous transfers of bonds to buyers and funds to sellers. This reduces the risk of delayed payments or asset transfers.
The bonds will retain standard terms such as interest rates, maturity dates, and investor rights, while the record-keeping and settlement process is being modernized. The next step includes automating bond payments, moving away from the current manual process where issuers must track holders and calculate payments through banks.
In the new framework, authorized participants will utilize a shared registry, and smart contracts will manage interest and principal payments in digital rupees.
Initial Testing Phase
The testing phase began prior to the official announcement, with REC issuing tokenized bonds on September 7 at a 7.3% interest rate. The fundraising reached 5 billion rupees, with investor interest peaking at 7.96 billion rupees ($83.2 million).
Currently, only institutional investors can participate, requiring a central bank digital currency wallet and access to the Demat 2.0 system. Plans for the future include enabling secondary trading and increasing access to retail investors, although the experiment is still in its early stages.
In January, the RBI had suggested linking the digital currencies of BRICS nations to support cross-border trade and tourism payments, indicating a broader vision for digital currency integration.
