SEBI's Demat 2.0 Pilot Brings Tokenised Corporate Bonds to India's Market Infrastructure
Source: E-Sutra Policy Desk
India's corporate bond market is entering a new phase of digital experimentation as the Securities and Exchange Board of India (SEBI) has launched a pilot for tokenised corporate bonds under its Demat 2.0 initiative. The programme is designed to test whether distributed ledger technology (DLT), central bank digital currency (CBDC) and smart contracts can make bond issuance, settlement and servicing faster and more seamless.
The pilot has already moved beyond the testing stage, with three issuers completing tokenised bond transactions worth a combined ₹1,025 crore. Rural Electrification Corporation (REC) was the first, raising ₹500 crore from 18 investors on September 7. Larsen & Toubro (L&T) followed with a ₹500-crore issue involving four investors, while IIFL raised ₹25 crore. The initial activity is focused on institutional participation as the infrastructure is tested.
Under Demat 2.0, corporate bonds are represented as digital tokens on a distributed ledger maintained by market infrastructure institutions and owned by depositories. The securities remain governed by the existing legal and regulatory framework, meaning investor rights, issuer obligations, disclosures, credit-rating requirements and other safeguards continue to apply.
One of the key changes is the way securities and funds can be settled. The tokenised bond infrastructure is connected to the Reserve Bank of India's wholesale CBDC, or digital rupee, through the Unified Market Interface. This supports atomic settlement, allowing the transfer of the bond and corresponding funds to occur together rather than through separate processes. The model could reduce settlement and reconciliation risks while improving transaction efficiency.
The technology could also change how post-issuance servicing is handled. Smart contracts can be used to automate functions such as interest payments and redemption, reducing manual intervention and the possibility of operational errors. For issuers, the system could enable quicker access to funds, while investors could benefit from faster settlement when the bonds eventually move into secondary-market transactions.
SEBI is taking the project forward in phases. The current stage focuses on issuance, while subsequent phases are expected to test buying and selling through existing request-for-quote platforms and eventually extend access to retail investors. Importantly, investors will continue to hold the bonds through their existing demat accounts, without requiring a separate account or fresh KYC.
The broader significance of Demat 2.0 goes beyond corporate bonds. By bringing securities, settlement and servicing closer together on programmable digital infrastructure, the pilot gives regulators and market participants an opportunity to assess how tokenisation can reshape India's financial markets while retaining the protections of the existing system. Its success could provide a foundation for wider adoption of tokenised financial assets in the years ahead.