India has taken another step towards bringing blockchain technology into its financial markets with the launch of Demat 2.0, a pilot project by the Securities and Exchange Board of India (SEBI) to test tokenised corporate bonds.
The initiative, launched jointly with the Reserve Bank of India (RBI), aims to change how corporate bonds are issued, held, transferred and settled. Instead of relying entirely on conventional electronic records, the pilot uses Distributed Ledger Technology (DLT) to record ownership of bonds digitally. (sebi.gov.in)
The announcement was made by RBI Governor Sanjay Malhotra and SEBI Chairman Tuhin Kanta Pandey at the Global Fintech Fest in Mumbai. The project is being positioned as the next stage in India’s dematerialisation journey, building on the original demat system that changed the way investors held securities. (indianexpress.com)
Under the new system, a corporate bond is represented as a digital token on a distributed ledger. The ledger is maintained by regulated market infrastructure institutions, while ownership continues to remain within the regulated securities framework. This is different from cryptocurrencies, which operate outside India’s conventional securities market structure.
The pilot has already seen three corporate bond issuances worth a combined ₹1,025 crore from REC Ltd, Larsen & Toubro and IIFL. The L&T issue alone was worth ₹500 crore. The initial transactions are aimed at institutional investors as regulators test whether the technology can work smoothly at different stages of the bond lifecycle. (financialexpress.com)
One of the biggest changes under Demat 2.0 is the way transactions can be settled. The tokenised bond system is connected to the RBI’s wholesale Central Bank Digital Currency (CBDC) through the central bank’s Unified Market Interface (UMI).
This allows the bond and the payment to move together in what is known as atomic settlement or delivery-versus-payment. In simple terms, the buyer’s money and the seller’s security can be exchanged at the same time, reducing the possibility that one side of the transaction is completed while the other remains pending. (fortuneindia.com)
That could make the corporate bond market more efficient. Traditional transactions involve several stages of reconciliation between securities and cash records. A tokenised system can bring those records together, potentially reducing settlement time, operational work and counterparty risk.
The technology can also automate certain activities after a bond has been issued. Interest payments, redemptions and other asset-servicing functions can be handled through smart contracts, reducing the need for manual intervention. (financialexpress.com)
Importantly, tokenisation does not change the basic rights of investors. SEBI has said investors in tokenised corporate bonds will have the same rights as investors holding conventional bonds. The pilot is testing the technology and market infrastructure, rather than creating a separate class of securities with different investor protections. (livemint.com)
The pilot is initially focused on corporate bonds and institutional participants. Retail investors are not yet the main target, but regulators have indicated that wider participation could be considered as the system develops.
That could eventually be significant for India’s bond market. Tokenisation has the potential to make certain financial assets easier to divide and transfer, which could support fractional ownership and make high-value investments more accessible. However, moving from a controlled pilot to a broad retail system would require further testing, regulatory clarity and safeguards.
The project also involves several major financial-market institutions, including NSDL, CDSL, NSE, BSE, banks and NPCI. Their participation is important because Demat 2.0 needs to work across different parts of India’s existing financial infrastructure rather than operate as a standalone blockchain platform. (indianexpress.com)
The move comes as Indian regulators increasingly experiment with digital financial infrastructure. The RBI has been expanding the use cases for its digital rupee, while SEBI has been examining how emerging technologies can improve securities-market operations.
The central bank is also exploring the possibility of tokenising other assets, including gold, as it looks at expanding the Unified Market Interface. That suggests tokenisation could eventually move beyond corporate bonds if the underlying technology proves reliable. (economictimes.indiatimes.com)
There are still challenges. A pilot cannot establish how the system will perform during periods of heavy market activity or across a much larger number of investors. Questions around custody, taxation, accounting, secondary-market trading and operational risks will also need to be addressed before tokenised securities become widely used.
SEBI’s Demat 2.0 pilot is therefore less about replacing the existing demat system immediately and more about testing what the next generation of India’s securities infrastructure could look like.
If the experiment succeeds, corporate bonds could eventually move through a system where ownership, payment and post-trade services are connected digitally. That could make India’s debt market faster, more automated and easier to monitor while giving regulators a stronger technological foundation for the future.
The initiative marks a significant shift from simply holding securities electronically to creating a more integrated digital market infrastructure. For investors, the change may not be visible immediately, but the technology being tested could eventually reshape how corporate bonds, digital securities and other financial assets are issued and settled in India.