India’s SEBI to test tokenized corporate bond settlements in DLT pilot

India’s market regulator has moved ahead with a pilot project for tokenized corporate bonds, testing whether distributed ledger technology can improve liquidity and settlement efficiency in the country’s debt markets.

Speaking on the sidelines of the CareEdge Debt Market Summit in Mumbai on May 26, Securities and Exchange Board of India Chairman Tuhin Kanta Pandey said the regulator has approved a pilot initiative that will examine the use of Distributed Ledger Technology, or DLT, for the trading and settlement of corporate bonds.

During his interaction with the media, Pandey said the project would initially operate on a limited scale before any decision is taken on expanding the framework across the market. According to the SEBI Chairman, the implementation process could take between six and nine months as regulators and market participants work through multiple operational stages.

At the same time, the proposal has placed India’s approach to blockchain technology back in focus, particularly because the government continues to maintain a highly restrictive policy toward retail cryptocurrency trading while encouraging selected institutional uses of DLT infrastructure.

Pandey said certain DLT-based systems are already being used in segments such as covenant monitoring and depositories, though SEBI now wants to study whether tokenization can address long-standing inefficiencies in India’s corporate bond market.

India’s corporate bond market, estimated at nearly ₹59 lakh crore according to industry estimates cited in the additional context, continues to face low secondary market participation because many institutional investors hold bonds until maturity. Limited retail participation has also reduced price discovery and trading activity across the segment.

Under the proposed pilot, tokenization would convert traditional bond instruments into blockchain-based digital tokens capable of automated and near-instant settlements. The additional context noted that regulators are also evaluating whether fractional ownership structures could lower entry barriers for smaller investors.

Speaking about the expected benefits, Pandey said tokenization could improve liquidity and support “instantaneous autonomous settlements” within the bond market ecosystem.

RBI framework expected soon

During the event, Pandey said the Reserve Bank of India is separately working on draft guidelines connected to the framework and is expected to release the final norms shortly. He added that SEBI and stock exchanges are prepared to proceed once approvals from the central bank are finalized.

The SEBI Chairman also acknowledged risks associated with the technology, particularly concerns linked to future advances in quantum computing. According to Pandey, regulators need to examine whether developments in quantum systems could eventually affect cryptographic security used in DLT-based infrastructure.

India keeps the crypto sector in check

While India has opened the door for blockchain use cases in regulated financial markets, the country’s stance toward private cryptocurrencies remains tightly controlled through taxation and compliance rules.

Under India’s current virtual digital asset tax regime, profits from cryptocurrency transactions are taxed at a flat 30%, while a 1% tax is deducted at source for each trade. Existing rules also prevent investors from offsetting crypto losses against gains or regular income.

Meanwhile, crypto exchanges operating in India are required to register with the Financial Intelligence Unit-India and comply with the Prevention of Money Laundering Act requirements, including strict know-your-customer procedures and transaction reporting obligations.

Recent tax reporting rules have further tightened oversight. Digital asset platforms are required to submit user-level transaction data directly to the Income Tax Department, while delayed or inaccurate reporting can attract monetary penalties.

India is also integrating with the OECD’s Crypto-Asset Reporting Framework, a global data-sharing system that will allow authorities to receive information related to offshore digital asset holdings belonging to Indian residents.

By contrast, the corporate bond tokenization pilot will operate inside a permissioned and regulator-backed environment overseen jointly by SEBI and the RBI, separating the initiative from public blockchain networks commonly associated with cryptocurrencies such as Bitcoin and Ethereum.