India has begun to move the issuance and settlement of corporate bonds onto blockchain. The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) have recently launched a pilot program called “Demat 2.0” targeting the corporate bond market, which is worth approximately $620 billion. The initiative starts with the issuance and settlement processes for institutions.
The first three institutions have completed their issuance.
The new system is operated by two statutory securities depositories in India, NSDL and CDSL, and utilizes a private licensed blockchain. Corporate bonds are no longer merely traditional registration records; instead, they are issued in the form of native digital tokens.
- REC was the first to issue shares on September 7, raising 50 billion rupees.
- Larsen & Toubro will subsequently issue 50 billion rupees
- IIFL Finance Issues 2.5 billion rupees
Three issuers raised a total of 102.5 billion rupees, which is approximately 107 million US dollars. REC indicates that this transaction represents India's first issuance of tokenized corporate debt, attracting 18 investors to participate.
Connect to the digital rupee for synchronized settlement
This system connects to the Reserve Bank of India's wholesale digital rupee through a unified market interface. Bond tokens and funds can be settled simultaneously, which is what is known as atomic settlement.
This means that issuers have the opportunity to receive the raised funds on the day of bidding, without having to wait for several days as in the traditional process. At the same time, interest payments and maturity settlements can also be automatically executed by smart contracts, thereby reducing the need for manual processing.
Legal provisions and investor protection remain unchanged.
SEBI emphasizes that tokenization does not change the legal attributes of the bonds themselves. The original credit ratings, fiduciary arrangements, listing rules, and investor protection mechanisms of the bonds will all be retained, and the market will not be split into two separate systems due to the new system.
Investors can continue to hold these tokenized bonds through their existing Demat accounts without having to go through the KYC process again. According to the regulatory plans, secondary market trading will be gradually introduced in subsequent stages, and eventually, consideration will be given to opening it up to retail investors.
In recent years, India has maintained a cautious attitude towards private cryptocurrencies, but it has made rapid progress in blockchain and digital currency applications led by the government. This pilot project of tokenizing corporate bonds indicates that the country is introducing distributed ledger technology into larger-scale traditional capital market scenarios.
