India starts tokenizing $620 billion corporate bond market with digital rupee settlement

India has started settling corporate bonds using blockchain technology and central-bank digital money, taking tokenization deeper into the country’s traditional financial markets.

The Securities and Exchange Board of India this week launched Demat 2.0, a pilot built around the electronic accounts Indian investors already use to hold stocks and bonds. Under the program, corporate bonds can be issued as digital tokens on a distributed ledger run by regulated market institutions.

State-owned power-sector lender REC raised ₹500 crore, about $56 million, through the system earlier this month. Engineering and construction giant Larsen & Toubro followed with another ₹500 crore, while non-bank lender IIFL Finance raised ₹25 crore, about $2.8 million.

The bonds themselves stay conventional, with fixed interest rates, maturity dates and investor rights. But instead of passing through separate settlement systems, the tokenized bond and the digital rupees used to buy it can move together.

Demat 2.0 connects the tokenized bond ledger with the Reserve Bank of India’s wholesale digital rupee through its Unified Market Interface. That allows the bond and the money used to pay for it to move together, cutting settlement risk between the two sides of a trade.

In a conventional settlement flow, payment and delivery are coordinated across separate systems. If one leg fails before the other completes, one side can be left exposed — and linking the two allows both to settle together.

Corporate actions such as interest payments and redemptions can also be handled through smart contracts, while later phases of the pilot are expected to introduce secondary-market trading and eventually widen access to retail investors.

That approach stands out in a country that has remained cautious toward private cryptocurrencies, despite onchain research firms regularly putting the populace among the top crypto adopters in the world.

Rather than push investors toward open blockchain markets, Indian regulators are bringing tokenization into the financial system they already control, with banks, depositories and central-bank money sitting at the center of it.