India is preparing to launch its first tokenized corporate bond issue in September, a milestone in the country's effort to apply blockchain technology to its securities markets, according to reports. State-owned power financier REC is expected to lead the pilot, a move that could place India among a growing group of financial markets experimenting with distributed ledger technology (DLT) for bond issuance and settlement. Earlier movers include the World Bank, which placed the blockchain-issued "bond-i" in 2018; the European Investment Bank, which has issued digital bonds since 2021; and the Hong Kong government, which sold tokenized green bonds in 2023, alongside industry pilot programs such as Singapore's Project Guardian.

REC, originally set up as the Rural Electrification Corporation, is expected to issue less than 500 crore rupees — about 5 billion rupees, or roughly $60 million — worth of tokenized bonds under the pilot, according to reports citing three sources familiar with the initiative. The offering is expected to be limited to a select group of investors, and the identities of the participating institutions have not yet been disclosed. One source said the pilot could be formally introduced at an annual financial technology event scheduled to take place in Mumbai next month.

The initiative is designed to test whether blockchain-based infrastructure can make bond issuance and settlement faster and more efficient, while connecting digital securities with India's central bank digital currency.

SEBI and RBI collaborate on digital securities

The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are jointly working on the initiative as authorities assess how distributed ledger technology can be incorporated into the country's financial infrastructure.

Tokenized bonds are securities whose ownership, issuance, transfer and settlement are recorded on a blockchain or another distributed ledger system. Unlike traditional securities infrastructure, which can involve multiple intermediaries and settlement processes, blockchain-based systems can potentially enable transactions to settle far faster.

The pilot is also expected to incorporate India's central bank digital currency, commonly known as the digital rupee. The RBI has operated a wholesale digital rupee pilot since November 2022 that settles secondary-market trades in government securities, and the bond offering would apply that same payment rail to a corporate instrument. Investors taking part in the offering are expected to use the digital rupee to purchase the tokenized bonds, creating a system in which both payment and securities ownership are handled through digital infrastructure.

Participants will reportedly need access to two separate digital accounts: a wholesale CBDC wallet provided through a bank, and a newly developed electronic securities wallet.

DEMAT 2.0 to record bond ownership

India's securities depositories are developing the electronic securities wallet, described in reports as a first-of-its-kind system referred to as DEMAT 2.0. The wallet is expected to use distributed ledger technology to record investors' holdings of tokenized bonds. The name points to the next iteration of India's dematerialized (DEMAT) account system, which has been the standard way of holding securities in the country since its first depository began operating in 1996; today, those accounts are maintained through two depositories, NSDL and CDSL.

Under the proposed structure, secondary transactions would be limited to investors equipped with compatible CBDC and securities wallets, creating a closed digital ecosystem in which the movement of funds and securities occurs through interconnected infrastructure.

By linking the digital rupee with a distributed-ledger-based securities wallet, the pilot would allow regulators to assess how digital payments and tokenized securities can operate together within a controlled market environment.

Secondary market could follow in December

The tokenized bonds are expected to carry an initial three-month lock-in period. Stock exchanges are reportedly planning to develop a secondary market for the securities by December, potentially allowing investors to trade the instruments once the initial restriction expires.

Unlike conventional bonds, the tokenized securities are not expected to use the existing electronic book provider platform — the mechanism used in India for private placements of debt securities — for trading. Instead, transactions would take place through the new digital infrastructure being tested as part of the pilot.

The initiative comes as India continues to expand its experiments with digital financial systems. The combination of tokenized securities and the central bank digital currency could provide authorities with practical experience in managing blockchain-based issuance, payments and ownership records.

The pilot could also offer insights into whether distributed ledger technology can reduce settlement risks and operational complexity. Near-instant settlement may allow securities and payments to move through integrated systems with fewer procedural steps.

The near-term checkpoints include the pilot's unveiling at the Mumbai fintech event, the September issuance itself, the targeted December launch of secondary trading, and whether participation eventually widens beyond the closed group of investors holding compatible wallets.

If the experiment performs as intended, the project could provide a foundation for broader adoption of tokenized securities in India's capital markets. The planned REC issue therefore represents an important test of whether blockchain technology can support faster settlement, streamlined bond transactions and a more integrated digital securities ecosystem.

Source: CoinTrust