India Begins Tokenizing Its $620 Billion Corporate Bond Market

India has started issuing corporate bonds as digital tokens settled with a central bank digital currency, a pilot that could reshape how one of Asia’s largest debt markets clears and holds securities. The program, called “Demat 2.0,” was unveiled in the days before September 14, 2026, with the first tokenized bond issued on September 7. Regulators frame it as a test of whether a major economy can move corporate debt onto a blockchain ledger without disrupting the rules that already govern who can buy, sell and trust that debt.

The effort involves the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the two statutory depositories NSDL and CDSL, and three early issuers: state-run power lender REC, engineering conglomerate Larsen & Toubro, and non-bank lender IIFL Finance. Together they have raised 1,025 crore rupees, roughly $107 million, since the pilot began — REC alone brought in 500 crore rupees from 18 investors, L&T matched that figure, and IIFL Finance raised 25 crore rupees. Against India’s $620 billion corporate bond market, these are small numbers, but the structure behind them is the real story.

How the pilot actually works

Rather than building a new, open blockchain, India routed the pilot through infrastructure it already controls. The tokens sit on a private, permissioned ledger operated by NSDL and CDSL, the depositories that already record ownership of nearly every security in the country. That ledger connects to the RBI’s wholesale digital rupee through what officials call a Unified Market Interface, enabling what is known as atomic settlement — the simultaneous, all-or-nothing exchange of a bond token for digital rupee, removing the lag and counterparty risk that can arise when payment and delivery happen in separate steps.

Crucially, SEBI has said the tokenized bonds keep their existing credit ratings, trustees, listing requirements and investor protections. Investors do not need new KYC checks or new accounts; the tokens can sit inside the same Demat accounts that already hold conventional Indian securities. That design choice is deliberate. It lets regulators test blockchain settlement without asking the market to also accept a parallel, less-supervised system of custody or disclosure. In effect, India is tokenizing the plumbing of bond settlement while leaving the legal and regulatory skeleton of the bond itself untouched.

What this means for issuers, investors and policy

For issuers like REC and L&T, the appeal is largely operational: smart contracts running on the permissioned ledger can automate coupon payments and other servicing tasks that are currently handled through manual or semi-automated processes involving multiple intermediaries. Faster, atomic settlement also reduces the window in which a trade can fail or a counterparty can default before payment clears. For the 18 investors who backed REC’s raise, the practical experience of holding the bond may look identical to a conventional debt instrument, since ownership still shows up in the same depository accounts they already use.

The broader significance lies in what the pilot signals about India’s approach to blockchain and digital money more generally. The country has kept a firm line against privately issued cryptocurrencies while simultaneously building out its own state-controlled digital rupee and tokenization infrastructure — a contrast to jurisdictions where stablecoin issuers and banks are experimenting more openly, as seen in Circle’s push to expand USDC market access or Coinbase’s arrangement letting community banks offer stablecoins. India’s model instead keeps the ledger permissioned, the depositories statutory, and the settlement asset a central bank liability rather than a privately issued token. It is less a bet on open blockchain markets than an attempt to graft distributed-ledger efficiency onto a tightly supervised financial system, a philosophy that also runs through India’s earlier tokenization efforts aimed at widening middle-class access to investment products.

What to watch next

SEBI has indicated that future phases of Demat 2.0 will attempt to add secondary trading of the tokenized bonds and, eventually, retail investor access — both meaningfully harder problems than the primary issuances completed so far. Secondary trading requires liquidity and price discovery mechanisms that a handful of institutional placements do not test. Retail access raises questions about disclosure, suitability and investor protection at a much larger scale. Readers should also watch whether other Indian issuers follow REC, L&T and IIFL Finance onto the platform, whether the RBI expands wholesale digital rupee volumes tied to the program, and whether India’s calibrated approach — tokenization within existing regulatory rails rather than alongside them — becomes a reference model as other regulators debate how to treat tokenized securities, a discussion running in parallel to U.S. legislative fights such as the one detailed in coverage of the CLARITY Act’s contested path through the Senate.

Source: Decrypt

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