India launches bond settlement in digital rupee

India issued 1,02.5 billion rupees of tokenized corporate bonds through "Demat 2.0" pilot

India has issued tokenized corporate bonds with a total value of approximately 1,02.5 billion rupees (approximately 116 million US dollars) through three transactions using the Reserve Bank (RBI) wholesale digital rupee settlement.

Details of pilot issuance

India's "Demat 2.0" pilot project has completed the issuance of tokenized corporate bonds among three companies. The specific issuance status is as follows:

• REC Company : Through India's first corporate bond issuance based on native distributed ledger technology, 50 billion rupees were raised from 18 investors.
• Larsen & Toubro (L&T): Raised Rs 500 crore.
• IIFL: A separate tokenization issue of Rs 250 million was completed.

The payment settlement of these transactions is completed in an atomic settlement manner through the RBI Unified Market Interface. Future pilot phases will add secondary market trading functions on the existing Request for Quotation (RFC) platform and open channels for retail investor participation.

Technical Architecture and Regulatory Background

The Securities and Exchange Commission of India (SEBI) said on September 10 that the "Demat 2.0" pilot will connect distributed ledgers owned by India's legal depositories with RBI's unified market interface. The system uses an atomic settlement mechanism to synchronize the transfer of bond ownership with the payment of funds.

Previously, SEBI and RBI jointly announced the pilot project at the Global Fintech Fest in Mumbai. SEBI Chairman Tuhin Kanta Pandey and RBI President Sanjay Malhotra jointly introduced the project.

Legal attributes of tokenized bonds

Despite the adoption of blockchain technology, India's tokenized bonds still belong to the category of traditional securities. "Demat 2.0" mainly changes the way ownership records, settlement processes and bond services are managed. It does not create new securities classes, nor does it change the issuer's repayment obligations.

Each tokenized bond retains its fixed interest rate, maturity date and legal rights. Existing credit rating, debenture trustee, exchange listing and corporate disclosure requirements continue to apply.

Ownership records are stored on distributed ledgers maintained by regulated depositaries in India. Investors hold securities through their existing DeMAT accounts, which means participants do not need to open additional securities accounts or undergo new identities. However, investors still need to activate the "Demat 2.0" authority with the relevant depository institution and hold wholesale digital rupee wallets at participating banks because payment settlements use currency issued by RBI.

SEBI described the structure as India's first native distributed ledger corporate bond issuance with ownership records maintained by a legal depository and settled by the central bank's digital currency. Unlike similar projects in other markets that often create platforms for individual issuers, the system relies on existing regulated infrastructure.

Market Size and Issuance Status

According to data from the National Securities Market Research Institute of India (NISM), as of September 2025, the size of the Indian corporate bond market was approximately 53.64 trillion rupees (approximately 627 billion US dollars). This data supports the previously reported market valuation of US$620 billion, but does not represent the actual amount entered the pilot.

As of now, only Rs 1,025 crore has been issued through the "Demat 2.0" system. SEBI has not yet set a target for total bonds to be included in the system.

Advantages of atomic settlement

"Demat 2.0" connects bond ledgers with RBI wholesale central bank digital currency through a unified market interface. Atomic settlement means that the delivery of tokenized securities and digital rupee payments are completed simultaneously as a single transaction.

In traditional bond issuance, securities allocation and funds transfer usually involve different systems. According to SEBI, under the old process, issuers typically received funds two to three days after bidding. In pilot projects, issuers can receive payment on the day of bidding. Regulators note that atomic settlement eliminates the risk of one party completing a transaction and the other failing. Although SEBI listed this settlement risk reduction feature as a pilot advantage, this did not come from the findings of an independent performance review.

Corporate actions, such as interest payments and principal redemptions, can be performed through smart contracts on the depository ledger. The programmatic order will automatically trigger the transfer of funds to investors 'wholesale digital rupee wallets on the expiration date. In contrast, traditional service models require issuers or registration agencies to obtain a list of holders, calculate each payment, and send funds through banking channels. In the pilot, authorized agencies shared access to ownership records, simplifying manual file sharing, reconciliation and verification. However, SEBI has not released audit data that measures reduced operating costs or reduced error rates.

Differences from traditional crypto assets

India uses central bank currency differently than hedging stablecoins or other tokenized securities backed by digital assets traded on the crypto market. As industry reports show, tokenized stock deposits in decentralized financial applications such as Uniswap v4 have reached tens of millions of dollars, while "Demat 2.0" runs between regulated depositaries and participating banks and does not involve private token settlement or transactions through decentralized exchanges.

Test cases of three issuers

State-owned REC Company : The pilot started on September 7 and issued a bond worth Rs 50 billion. Relevant information shows that the bond has a coupon rate of 7.30%, and has a maturity of 19 months. REC initially offered a quota of Rs 10 crore and a green shoe option of Rs 40 crore. According to reports, investor bids totaled Rs 79.6 billion, exceeding the final issuance.

Larsen & Toubro (L&T): The second deal was completed two days later, and four investors purchased its Rs 50 billion bonds. SEBI did not disclose the identity of investors, investment allocations or bond coupon rates in the pilot announcement.

IIFL: The third transaction was conducted on September 9, issuing Rs 250 million to a single investor. Regulators did not identify the buyer or explain why the transaction involved only one participant.

Assuming no investor participates in more than one transaction, the total number of investors participating in these three transactions is 23. Since SEBI has not released a list that can verify overlaps, the exact number is uncertain. In addition, there was no verified market reaction after the announcement, and SEBI did not provide data on changes in secondary market prices, trading yields or issuers 'listed share prices.

Planning for subsequent phases

The first phase focuses on corporate bond issuance. SEBI said new offerings are continuing but did not disclose the names, transaction sizes or release dates of the next batch of companies.

In a subsequent stage, tokenized bonds will be connected to India's existing Request for Quotation (RFC) platform. The change will allow eligible investors to buy and sell securities after issuance while maintaining trading within the current regulated market structure. SEBI pointed out that secondary market sellers can receive digital rupee funds immediately, compared with the previous settlement cycle of two to three days. Currently, regulators have not announced the start time of this transaction phase.

The retail participation plan will be implemented in a subsequent phase. Individual investors will use their existing DeMAT accounts, but will need to activate "Demat 2.0" permissions and have a compatible digital rupee wallet.

RBI has previously used its wholesale digital rupee for controlled financial market transactions. The system remains separate from the public cryptocurrency market, private tokens are not used to settle bond transactions, and securities are not traded through decentralized exchanges.

SEBI stated that experience gathered during the issuance, secondary market trading and retail stages will guide any expansion efforts. As of now, SEBI has not committed to full promotion, nor has it announced the deadline for deciding whether "Demat 2.0" will exceed the pilot status.