India’s Securities and Exchange Board of India launched the Demat 2.0 pilot, with three companies issuing tokenized corporate bonds by Sept. 10. The project matters because it introduces distributed-ledger issuance and wholesale digital-rupee settlement to a corporate bond market valued at about $627 billion.

SEBI announced the pilot’s successful launch after the three issuers raised a combined 10.25 billion rupees, or about $115 million.

SEBI Chairperson Tuhin Kanta Pandey and Reserve Bank of India Governor Sanjay Malhotra presented the project at the Global Fintech Fest in Mumbai. Its rollout is intended to modernize India’s corporate bond segment, which stands at 53.64 trillion rupees, or $627 billion, and accounts for about 22.51% of the country’s total bond market.

How Demat 2.0 works

Demat 2.0 provides infrastructure for issuing, holding, trading and settling corporate bonds. Each bond is created as a digital token on a distributed ledger owned by depositories and jointly maintained by market-infrastructure participants.

The system connects to India’s wholesale central bank digital currency through the RBI’s Unified Market Interface. This allows atomic settlement, in which the bond and the corresponding funds move simultaneously. Smart contracts can also automate interest payments and redemptions.

Authorized institutions can immediately view bondholder information on the shared ledger. On the specified payment date, digital rupees can then be credited automatically to bondholders’ CBDC wallets.

SEBI said the system should reduce manual processes, accelerate settlement and lower the likelihood of errors. The regulator cited several potential benefits, including issuers receiving funds on the trading day rather than waiting two to three days and investors receiving money immediately after secondary-market transactions.

SEBI also said automation could lower issuance and servicing costs, reduce file exchanges, reconciliations and checks for financial intermediaries, and eliminate settlement risk through atomic settlement. Interest and redemption proceeds can be credited automatically in digital rupees to holders’ CBDC wallets.

Three issuers raise 10.25 billion rupees

REC Limited became the pilot’s first issuer on Sept. 7, raising 5 billion rupees, or about $56 million, from 18 investors. REC is a state-owned finance company.

L&T Limited raised another 5 billion rupees, or about $56 million, from four investors on Sept. 9. IIFL, a private non-bank financial company, raised 250 million rupees, or about $2.8 million, from one investor on the same date.

The pilot’s first phase focuses on issuance. SEBI plans to add trading in tokenized bonds through existing request-for-quote platforms before later extending access to retail investors.

Tokenization does not change the bonds’ legal nature. Issuers’ obligations, investors’ rights and requirements governing credit ratings, debenture trusts, listings and disclosures remain in force. The tokenized securities will trade in the same way as bonds held in the standard dematerialized format.

Investors do not need to open a separate account or repeat know-your-customer checks. The bonds will be held in existing demat accounts, although investors must activate Demat 2.0 with their depository and maintain a wholesale digital-rupee wallet at a participating bank.

India’s model and other tokenization projects

SEBI cited several other bond-tokenization initiatives, including Project Helvetia III in Switzerland, Project Evergreen in Hong Kong and tokenized U.S. Treasuries, as well as issuances by BlackRock, JPMorgan and the Asian Infrastructure Investment Bank.

Under India’s model, corporate bonds are issued directly on a distributed ledger from the outset, state depositories record ownership, and the cash side of each transaction settles through the central bank’s digital currency within the existing regulated infrastructure.

The pilot comes as other real-world assets are being tokenized in India. Agritech company Arya.ag, described as the country’s largest agricultural warehouse operator, is launching a layer-one network based on Avalanche technology to tokenize grain, warehouse receipts and loan status. The company stores about $2 billion in agricultural assets and facilitates approximately $1.3 billion in loans annually.

Source: Incrypted