On September 10, India unveiled Demat 2.0, a pilot initiative for the issuance of tokenized corporate bonds settled in the digital rupee. The announcement was made by the Securities and Exchange Board of India (SEBI).
This initiative was developed in collaboration with the Reserve Bank of India (RBI) and was showcased at the Global Fintech Fest in Mumbai.
The project has garnered participation from depositories NSDL and CDSL, stock exchanges NSE and BSE, HDFC Bank and ICICI Bank, along with the National Payments Corporation of India, as reported by The Indian Express.
At the time of the announcement, three companies had already issued bonds totaling 10.25 billion rupees (approximately $107 million) through the new system. Both REC and Larsen & Toubro raised 5 billion rupees ($52.2 million) each, while IIFL secured an additional 250 million rupees ($2.6 million).
Settlement Process
Demat 2.0 integrates bond ownership records within a distributed ledger with the wholesale digital rupee from the RBI. This is facilitated through the Unified Market Interface, which connects securities transactions with payment processes.
This integration allows for the simultaneous transfer of bonds to buyers and funds to sellers, thereby reducing the risk of scenarios where one party has fulfilled their obligations while the other has yet to receive payment or the asset.
The bonds maintain their standard terms, including interest rates, maturity dates, and investor rights; however, the infrastructure for their record-keeping and settlements is evolving.
The next phase will focus on automating bond payments. Currently, issuers or their registrars must obtain a list of holders from the depository, calculate amounts, and make payments through banks separately.
In the new system, authorized participants will be able to work with a shared registry, and smart contracts will facilitate the payment of interest and principal in digital rupees.
Testing Phase Initiation
The first issuance occurred prior to the official pilot presentation. On September 7, the state-owned company REC, which finances the energy sector, issued tokenized bonds with an interest rate of 7.3%.
With a final fundraising volume of 5 billion rupees, investor demand reached 7.96 billion rupees ($83.2 million).
Initially, participation is limited to institutional investors. To engage with this instrument, a central bank digital currency wallet and access to the Demat 2.0 infrastructure are required.
Future plans include launching secondary trading and expanding access to retail investors. For now, this remains a restricted experiment.
As a reminder, in January, the RBI proposed linking the digital currencies of BRICS nations to facilitate cross-border trade and tourism payments.