India piloted the issuance of US$107 million in tokenized bonds and adopted the new tokenized bond p

India moves tokenized corporate bonds from theory to practice

India is promoting tokenized corporate bonds from theoretical concept to practical implementation. The Securities and Exchange Commission of India (SEBI) and the Reserve Bank of India (RBI) have launched a pilot program to issue and settle selected corporate bonds in the form of digital tokens within a regulated market infrastructure.

In this project, the three issuers have completed initial sales totaling Rs 10.25 billion (approximately US$107 million). SEBI said the first transactions were designed to test how to issue, hold and settle tokenized bonds on a distributed ledger, while the payment link was linked to RBI's wholesale central bank digital currency (CBDC).

Core Points

• Support mechanism: SEBI's "Demat 2.0" pilot supports the issuance and holding of tokenized corporate bonds on distributed ledgers managed by India's statutory depositories.
• Issue Size: As of now, the total pilot issuance amount is Rs 10.25 billion, involving three companies, including two issues of Rs 5 billion each.
• Settlement efficiency: The design goal is to achieve faster settlements: SEBI points out that "atomic settlements" reduce the time lag between funds and bond transfers.
• Participation requirements: Investors can use existing Demat accounts, but must enable Demat 2.0 functionality and maintain a wholesale CBDC wallet at participating banks to complete settlement.
• Legal protection: SEBI claims that tokenization retains legal protections, including bond repayment obligations and investor rights protection.

Deep link between Demat 2.0 and RBI wholesale CBDC

SEBI announced on Thursday that "Demat 2.0" enables corporate bonds to be issued and held as digital tokens on distributed ledgers operated by legal depositaries. The system is designed to connect to RBI's wholesale CBDC through the Central Bank's Unified Market Interface.

SEBI also described two core technology changes aimed at increasing the speed of operations:

• Atomic Settlement: aims to eliminate the delay between the flow of funds and the flow of bonds.
• Smart Contracts: SEBI says this can automate regular interest payment and redemption workflows.

The practical impact on market participants is obvious: If settlement times are shortened and payments are synchronized with delivery, issuers may reduce execution friction, while investors will experience a clearer post-trading mechanism than traditional longer cycles.

The first batch of issuers and amounts complete the first stage

The SEBI pilot began with three launches across different types of companies. The initial issuance was led by public sector lender REC. On Monday, REC raised Rs 5 billion from 18 investors. Subsequently, on Wednesday, Lassentubo Company (L&T) issued another bond worth Rs 5 billion, which was subscribed by four investors. On the same day, non-bank lending institution IIFL issued bonds worth Rs 250 million to a single investor.

SEBI said the infrastructure allows issuers to receive funds on the day of bidding rather than waiting two to three days. This shift is significant because faster funding cycles can improve issuers 'liquidity planning and potentially shorten the operating window that intermediaries manage during issuance.

Pilot builds on earlier smaller test plans

This rollover represents an expansion of earlier plans previously reported by Reuters. In August this year, Reuters reported that India plans to issue tokenized corporate bonds of less than Rs 5 billion to selected investors through REC for testing purposes. According to SEBI's latest update, the pilot ultimately exceeded its original scope: SEBI's release added two additional issuers, bringing total circulation to more than double the original forecast of REC circulation.

SEBI also stated that the pilot is not the end. SEBI stated that subsequent stages will explore:

• Use the existing quote request platform for secondary market transactions.
• Access for retail investors, using pilot experience to guide any broader promotion.

This phased approach is crucial for readers to understand. Early tokenized bond pilots often limited participants and transaction complexity to reduce operational risk. Here, SEBI's roadmap suggests that regulatory focus may shift from primary issuance mechanisms-that is, how bonds are minted and settled-to market liquidity issues, such as how tokenized bonds perform in a trading environment and how retail visits are handled.

Investors do not need to open a separate account to participate

SEBI said investors can hold tokenized bonds in their existing Demat accounts. This reduces the friction typically associated with introducing new digital tools-especially in markets where Demat is already highly engaged.

However, participation is not entirely plug-and-play. SEBI points out that investors must:

• Enable Demat 2.0 through the depository.
• Maintain a wholesale CBDC wallet at participating banks to settle payments.

SEBI also emphasized that the tokenization layer will not change the underlying legal framework of bonds. Regulators said tokenization does not change the bond's legal status, repayment obligations or investor protection.

This clarification is crucial for markets: When regulators tie new settlement mechanisms to the same legal rights they are already familiar with in traditional bond markets, investors may be more willing to participate in tokenization vehicles.

Future Outlook

The next thing worth noting is whether the settlement acceleration promised by the pilot can translate into measurable operational benefits as the project moves towards secondary market transactions and wider access. The next step in SEBI's plan could be a real stress test-to determine whether tokenized offerings can expand from controlled primary transactions to active market transactions without creating new settlement, liquidity or compliance bottlenecks.