India is preparing to test blockchain-based bond settlement with the launch of tokenized corporate bonds next month, Reuters reported Monday, citing three people familiar with the plans.

The pilot will be led by state-owned power financier REC and is expected to involve less than 5 billion rupees ($57 million) in bonds. REC, a lender to power projects that operates under the administrative control of India's Ministry of Power, is a regular issuer in the domestic bond market.

The offering could be announced at the Global Fintech Fest, an annual fintech gathering in Mumbai, and will be restricted to a select group of investors at launch. The move would mark an early test of distributed ledger technology for bond issuance and settlement in India, bringing it closer to markets such as Europe and Hong Kong that have already explored tokenized securities. The European Investment Bank has issued blockchain-based bonds since 2021, and Hong Kong's government has sold tokenized green bonds under a program known as Project Evergreen.

According to the report, investors will use India's central bank digital currency, the digital rupee, to purchase the bonds, with the Reserve Bank of India and market regulator the Securities and Exchange Board of India working together on the framework. Tokenization places bond ownership, issuance, trading and settlement on a blockchain or distributed ledger, potentially allowing transactions to settle almost immediately — a contrast with conventional bond settlement, where payment and the transfer of ownership move through separate systems over one or more business days. The Reserve Bank of India has been running a wholesale digital rupee pilot since November 2022, first used to settle secondary-market trades in government securities; applying it to corporate bonds would widen the test to a new asset class.

The pilot will require participants to hold both a wholesale CBDC wallet and a digital securities wallet. Indian depositories are developing a new securities wallet, called DEMAT 2.0, which will track bond holdings on a distributed ledger. The name signals an upgrade to India's existing dematerialized, or "demat," account system, which has held the country's securities in electronic form since the 1990s. Future trades will only be possible between participants holding compatible CBDC and securities wallets.

The bonds will have an initial three-month lock-in period, with exchanges expected to establish a secondary market by December. They will not be traded through a conventional electronic book provider platform. At under $57 million, the offering is small relative to India's corporate bond market, where outstanding debt runs into tens of trillions of rupees, a scale consistent with its pilot status. The December secondary-market launch and any widening of investor access beyond the initial select group are among the next milestones that will indicate how the trial is progressing.