Overview
- The Securities and Exchange Board of India (SEBI), in collaboration with the Reserve Bank of India (RBI), has initiated a pilot program called "Demat 2.0" to issue and settle corporate bonds as digital tokens on a permissioned ledger managed by depositories NSDL and CDSL, targeting a substantial $620 billion market.
- Three entities—REC, Larsen & Toubro, and IIFL Finance—have collectively raised 1,025 crore rupees (approximately $107 million); the system is integrated with the RBI's wholesale digital rupee for simultaneous settlement, utilizing smart contracts to automate interest and redemption processes.
- The bonds will maintain their legal characteristics, ratings, and investor protections, with plans for secondary trading and retail access in future phases.
India has embarked on a pioneering pilot project to issue and settle corporate bonds using blockchain technology, marking a significant step towards integrating distributed ledger systems into its $620 billion bond market through the use of the digital rupee.
The SEBI launched this initiative, referred to as "Demat 2.0," last week in partnership with the RBI, with SEBI Chairman Tuhin Kanta Pandey and RBI Governor Sanjay Malhotra presenting the details at the Global Fintech Fest.
In this new framework, corporate bonds will be issued as digital tokens on a private, permissioned ledger operated by India’s statutory depositories, NSDL and CDSL.
So far, three companies have utilized this system, raising a total of 1,025 crore rupees, or about $107 million. REC was the first to issue a tokenized corporate bond on September 7, securing 500 crore rupees from 18 investors, followed by Larsen & Toubro with another 500 crore rupees and IIFL Finance with 25 crore rupees.
This system connects the token ledger to the RBI's wholesale digital rupee via a Unified Market Interface, allowing for atomic settlement where both the bond and payment are exchanged simultaneously.
This advancement enables issuers to receive funds on the same day as bidding, rather than waiting several days, and smart contracts facilitate automatic processing of interest payments and redemptions.
SEBI emphasized that the bonds will retain their original legal terms, including credit ratings, debenture trustees, listing regulations, and investor protections, ensuring that the market remains unified. Investors can hold these tokens in their current Demat accounts without the need for new know-your-customer (KYC) procedures. Future phases will aim to introduce secondary trading and retail access.
While India has generally taken a cautious approach towards private cryptocurrencies, it is embracing blockchain technology on its own terms, exemplified by the launch of the RBI-backed digital rupee and a legislative push to utilize tokenization to enhance investment opportunities for the middle class.