India Tests Instant Settlement for Tokenized Corporate Bonds

India’s financial market infrastructure is being structurally overhauled through a regulatory test linking central bank digital currency directly to primary debt issuances. The project targets settlement latency across the country’s $620 billion corporate bond market.

Under the framework designated as “Demat 2.0,” the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) allow corporate bonds to be issued natively as digital tokens on a permissioned distributed ledger.

The system connects tokenized debt directly with the RBI’s wholesale digital rupee, allowing funds and securities to move simultaneously through atomic settlement. The dedicated middleware framework responsible for connecting the depository token ledger to the RBI’s wholesale digital rupee ledger is called the Unified Market Interface (UMI).

State-run power finance firm REC Limited completed the first issuance on Sept. 7, raising 500 crore rupees from 18 institutional investors in India’s first tokenized corporate bond sale. Larsen & Toubro, an engineering and infrastructure conglomerate, later raised another 500 crore rupees.

Across its initial trial, the framework has executed 1,025 crore rupees, approximately $107 million, in initial bond sales involving state-backed and private-sector issuers. Non-banking financial firm IIFL Finance issued 25 crore rupees in corporate debt through the system.

SEBI Chairman Tuhin Kanta Pandey and RBI Governor Sanjay Malhotra introduced the operational framework at the Global Fintech Fest. The architecture uses smart contracts to automate corporate actions such as periodic coupon distributions and principal redemptions at maturity.

Its technical infrastructure is a private, permissioned blockchain network operated by India’s central depositories: National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). NSDL was created in 1996 and CDSL in 1999 after the Depositories Act of 1996 supported India’s shift from paper securities to electronic equity and debt holdings.

In conventional debt-market operations, primary debt capital settlement generally depends on delayed clearing windows, typically following a T+1 or T+2 settlement cycle. During the period between bid acceptance and capital disbursement, intermediary clearing corporations must manage counterparty risk.

Demat 2.0 instead executes delivery versus payment (DvP) instantaneously on the bidding day. Bond tokens are delivered to the purchaser’s balance while wholesale digital rupees are transferred at the same time to the corporate issuer.

Regulators designed the project to function under existing financial laws rather than within a separate light-touch sandbox. Tokenized corporate bonds keep their legal status under SEBI debt market regulations, including existing requirements for independent credit ratings, debenture trustees, listing disclosures, and investor protection mechanisms.

Investors do not need standalone digital wallets or additional Know Your Customer (KYC) verification processes. Tokenized securities connect directly to their existing Demat accounts, helping prevent liquidity fragmentation between legacy and digital instruments.

The initiative also expands the operational use of the RBI’s wholesale central bank digital currency, e₹-W. That currency began its initial pilot on Nov. 1, 2022, with the scope limited to secondary market settlements of government securities.

Linking e₹-W to corporate bond issuance extends central bank digital money into private-sector capital formation. Demat 2.0 is the next iteration of India’s national clearing framework built through the country’s earlier move to electronic securities.

For now, trial activity is restricted to primary market debt placements involving accredited institutional participants. Regulatory plans call for secondary market trading to be added before access is eventually extended to retail investors.