India is moving tokenized corporate bonds from theory to execution. SEBI, the Securities and Exchange Board of India, and the Reserve Bank of India (RBI) have launched a pilot that issues and settles selected corporate bonds as digital tokens within regulated market infrastructure.

In the program, three issuers have completed initial sales totaling 10.25 billion rupees (about $107 million). SEBI said the first deals test how tokenized bonds can be issued, held, and settled on a distributed ledger while payments are linked to the RBI’s wholesale central bank digital currency (CBDC).

Key takeaways

• SEBI’s “Demat 2.0” pilot supports tokenized corporate bond issuance and holding on a distributed ledger managed by India’s statutory depositories.
• Total pilot issuance so far is 10.25 billion rupees across three companies, including two 5 billion rupee offerings.
• Settlement is designed to be faster: SEBI says atomic settlement reduces the gap between moving funds and bonds.
• Investors may use existing Demat accounts, but they must enable Demat 2.0 and maintain a wholesale CBDC wallet for settlement through participating banks.
• SEBI claims tokenization preserves legal protections, including bond repayment obligations and investor safeguards.

Demat 2.0 links tokenized bonds to RBI’s wholesale CBDC

SEBI said on Thursday that Demat 2.0 enables corporate bonds to be issued and held as digital tokens on a distributed ledger operated by statutory depositories. The system is designed to connect with the RBI’s wholesale CBDC using the central bank’s Unified Market Interface.

SEBI also described two core technical changes aimed at improving operational speed:

• Atomic settlement, intended to remove the delay between the movement of money and the movement of bonds.
• Smart contracts, which SEBI said can automate periodic interest and redemption workflows.

The practical implication for market participants is straightforward: if settlement timelines are shortened and payment and delivery are synchronized, issuers may reduce execution friction and investors may experience cleaner post-trade mechanics compared with longer traditional cycles.

Initial issuers and amounts complete the first phase

SEBI’s pilot began with three issuances across different company types. The first issuance was led by REC, a public-sector lender. On Monday, REC raised 5 billion rupees from 18 investors.

Next, Larsen & Toubro (L&T) issued another 5 billion rupees, raised from four investors, on Wednesday.

On the same day, IIFL, a non-bank lender, issued 250 million rupees in bonds 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 later. That shift matters because faster funding cycles can improve liquidity planning for issuers and potentially reduce the operational window that intermediaries manage during issuance.

Pilot built on a smaller test plan reported earlier

The rollout represents an expansion beyond an earlier plan described in reporting from Reuters. In August, Reuters said India planned to test tokenized corporate bonds through an REC issuance of less than 5 billion rupees with selected investors. According to SEBI’s latest update, the pilot ultimately grew beyond that initial scope: SEBI’s launch includes two additional issuers, bringing the total issuance to more than double what was originally expected from REC.

SEBI also indicated that the pilot is not the end of the story. SEBI said later phases will explore:

• Secondary trading using existing request-for-quote platforms.
• Access for retail investors, with the pilot’s experience used to guide any broader rollout.

This staging approach is important for readers to understand. Early tokenized bond pilots often limit participants and trading complexity to reduce operational risk. Here, SEBI’s roadmap suggests the regulatory focus may shift from primary issuance mechanics—how bonds are minted and settled—to market liquidity questions such as how tokenized bonds behave in trading environments and how retail access is operationally handled.

How investors participate without opening a separate account

SEBI said investors can hold the tokenized bonds in their existing Demat accounts. That reduces the friction typically associated with onboarding new digital instruments—especially in markets where Demat participation is already common.

However, participation is not entirely plug-and-play. SEBI said investors must:

• Enable Demat 2.0 through their depository.
• Maintain a wholesale CBDC wallet with a participating bank to settle payments.

SEBI also emphasized that the tokenization layer does not alter the bonds’ underlying legal framework. The regulator said tokenization does not change the legal status of the bonds, the repayment obligations, or investor protections.

For the market, that clarification matters: investors may be more willing to participate in tokenized instruments when the regulator ties new settlement mechanics to the same legal rights they already understand in traditional bond markets.

What to watch next is whether the pilot’s promised settlement acceleration translates into measurable operational benefits as the program moves toward secondary trading and wider access. SEBI’s planned next steps will likely be the real stress test—determining whether tokenized issuance can scale from controlled primary deals to active market trading without creating new settlement, liquidity, or compliance bottlenecks.

India’s capital markets are taking a tangible step toward blockchain-based settlement. The country’s securities regulator and central bank have launched a pilot that enables corporate bonds to be issued and held as tokenized assets, with settlement linked to the Reserve Bank of India’s (RBI) wholesale central bank digital currency (CBDC).

On Thursday, the Securities and Exchange Board of India (SEBI) said its “Demat 2.0” initiative allows corporate bonds to be issued and recorded as digital tokens on a distributed ledger maintained by India’s statutory depositories. The system is designed to connect to the RBI wholesale CBDC using the central bank’s Unified Market Interface (UMI).

Key takeaways

• SEBI’s Demat 2.0 pilot tokenizes corporate bond issuance and ownership records within India’s regulated depository framework.
• Settlement is tied to the RBI wholesale CBDC via the UMI, with SEBI describing “atomic settlement” to reduce timing mismatches between cash and bonds.
• The first issuers—REC, Larsen & Toubro (L&T), and IIFL—collectively raised 10.25 billion rupees (about $107 million) across multiple transactions.
• SEBI says issuers can receive funds on the day of bidding rather than the typical two- to three-day delay.
• Investors can use existing Demat accounts, but must enable Demat 2.0 through their depository and have a wholesale CBDC wallet with a participating bank for settlement.

The Demat 2.0 pilot and the first set of tokenized bond issuances

SEBI said Demat 2.0 enables tokenized corporate bonds to be issued and held on a distributed ledger managed by statutory depositories. The pilot architecture is intended to keep corporate bond legal issuance and investor protections within the existing framework, while modernizing the recording and settlement layer.

Three companies participated in the initial launch. SEBI reported that public-sector lender REC raised 5 billion rupees from 18 investors on Monday. Engineering and construction conglomerate Larsen & Toubro (L&T) followed with a separate 5 billion rupees issuance from four investors on Wednesday. Non-bank lender IIFL also issued 250 million rupees to a single investor on the same day.

In practical terms, SEBI said the infrastructure is designed to accelerate the payment window. Instead of funds arriving two to three days after bidding, the regulator claims issuers receive funds on the day of bidding. SEBI linked this improvement to “atomic settlement,” describing it as a mechanism that removes delay between transfers of money and transfers of bonds.

The regulator also pointed to smart contracts as a way to automate key cash-flow events associated with the bonds, including interest and redemption payments. While the details of the smart-contract logic were not elaborated in the announcement, SEBI’s emphasis is clear: the pilot aims to streamline both settlement timing and payment operations.

From a smaller REC test to a broader first phase

The pilot expands beyond what was initially described in earlier reporting. In August, Reuters said India planned to test tokenized corporate bonds through an REC issuance of less than 5 billion rupees with selected investors. The subsequent SEBI update indicates the launch went further than that preliminary plan.

SEBI’s description of the first phase shows that the pilot moved past the original REC-only concept to include two additional issuers. With REC at 5 billion rupees and the combined additions of L&T and IIFL, the first-phase total rose to more than double the originally reported amount expectation for REC.

SEBI also said the issuances in the first phase remain ongoing. It described later phases as building out functionality, including secondary trading using existing request-for-quote platforms and opening access to retail investors. The regulator added that experience from the pilot would inform any wider rollout.

How investors access tokenized bonds without changing Demat structure

A key question for tokenized-market pilots is whether investors must rebuild their infrastructure. SEBI said tokenized bonds can be held in existing Demat accounts without opening a separate account or completing new KYC processes.

However, SEBI noted that participation still requires enablement of Demat 2.0 through an investor’s depository. On the settlement side, investors must also maintain a wholesale CBDC wallet with a participating bank to receive and settle payments under the pilot’s CBDC-connected workflow.

SEBI further characterized the approach as a combination of three elements: (1) bonds issued “natively on a distributed ledger,” (2) ownership records maintained by statutory depositories, and (3) settlement conducted in CBDCs within existing regulated market infrastructure. The regulator’s framing suggests the pilot is meant to reduce friction between new settlement mechanics and the established compliance and custody system investors already rely on.

What remains unchanged: legal status and investor protections

Tokenization can raise concerns about legal enforceability and consumer safeguards, especially when settlement technology shifts from traditional rails to blockchain-linked workflows. SEBI addressed this directly by stating that tokenization does not alter the legal status of the bonds, repayment obligations, or investor protections.

That clarification matters for market participants evaluating risk: it implies the pilot is focused on changing how bonds are issued, recorded, and settled—rather than redefining the underlying contract or regulatory rights attached to the instruments. For issuers, the pitch is largely operational (faster funding and potential payment automation). For investors, the emphasis is on continuity of rights even as settlement infrastructure evolves.

As the first phase continues, the market will be watching whether SEBI’s promised advantages—same-day funding, atomic settlement behavior, and smooth automation of interest and redemption—hold up in practice. The next milestone will likely be how Demat 2.0 is extended toward secondary trading and broader investor access, and whether the pilot’s approach can scale without creating new operational bottlenecks.

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A ripple effect