India Begins Tokenizing $620B Corporate Bond Market With Digital Rupee

India has begun using blockchain technology and central-bank digital currency to settle corporate bond transactions, bringing tokenization further into the country’s traditional financial system.

The Securities and Exchange Board of India (SEBI) launched the Demat 2.0 pilot this week, building the initiative around the electronic accounts Indian investors already use to hold stocks and bonds. Under the pilot, corporate bonds can be issued as digital tokens on a distributed ledger operated by regulated market institutions.

State-owned power lender REC raised ₹500 crore, or about $56 million, through the system earlier this month. Larsen & Toubro followed with another ₹500 crore, while non-bank financial company IIFL Finance raised ₹25 crore, equivalent to about $2.8 million.

Although the bonds are tokenized, their basic financial terms remain unchanged. They continue to carry fixed interest rates, maturity dates and standard investor rights. The difference is that the tokenized securities and the digital currency used to purchase them can be transferred together rather than being processed through separate settlement systems.

Demat 2.0 links the ledger holding the tokenized bonds with the Reserve Bank of India’s wholesale digital rupee through the Unified Market Interface. This connection allows the asset and payment to settle simultaneously, reducing the settlement risk that can arise when the two sides of a transaction move through separate systems.

In traditional markets, securities and payments are handled through different settlement processes. A failure or delay on one side can leave the other party exposed. Linking the two through the digital infrastructure allows both legs of the transaction to be completed together.

Smart contracts can also automate corporate actions, including interest payments and bond redemptions. Future stages of the pilot are expected to add secondary-market trading before eventually expanding participation to retail investors.

The initiative highlights India’s approach to blockchain technology. While the country has maintained a cautious position toward private cryptocurrencies, research firms frequently rank India among the world’s largest crypto-adopting populations.

Instead of directing investors toward open blockchain networks, Indian regulators are applying tokenization within the existing financial infrastructure. Banks, securities depositories, regulated market institutions and central-bank digital money remain at the core of the system.

The Demat 2.0 pilot therefore represents a move toward integrating blockchain-based assets with India’s established financial markets while keeping issuance, settlement and oversight within the regulated financial system.