India has begun tokenizing its corporate bond market on blockchain, with settlement in the central bank’s digital rupee, in a pilot run jointly by market regulator SEBI and the Reserve Bank of India. The program, referred to in official documents as Demat 2.0, targets a corporate bond market worth roughly $620 billion that currently settles through the country’s traditional depository system over one working day.
The pilot links tokenized bond records to wholesale central bank digital currency, so that delivery of the bond and payment for it happen in the same atomic transaction. SEBI has described instant bond settlement as the goal of the first phase. Two government-linked pilots were confirmed this week, and the market infrastructure depositories have been instructed to prepare production systems alongside the test environment.
Why settlement time is the battleground
India’s corporate bond market trades in size but settles slowly by digital standards. A trade agreed today typically reaches final settlement the next working day, with money and securities moving through separate legs handled by clearing banks and the depositories NSDL and CDSL. Each leg is a point where a counterparty can fail, and each failure adds cost for issuers and investors.
Atomic settlement removes that gap. When the bond is a token and the cash is wholesale CBDC held at the RBI, both sides of the trade can settle in a single transaction that either completes or does not. The Bank for International Settlements has run similar experiments through its Nexus and mBridge work, and the ECB’s Pontes pilot is testing the same design for European securities. India’s version matters because the underlying market is large and retail participation is rising fast.
Who is already building
Private actors moved before the regulators finished. L&T, India’s largest engineering group, entered the tokenized bond market earlier this month, working with the exchange-backed infrastructure that grew out of last year’s sandbox cohort. An agriculture warehousing firm placed about $2 billion of crop collateral on blockchain, one of the largest real-world asset tokenizations in the country to date. On the infrastructure side, the Bond Tokenization Summit in Mumbai this week drew exchanges, depositories and fintech firms positioning for what they expect to be a licensed tokenized securities market.
The corporate bond market itself is the prize. At roughly $620 billion outstanding, it is small next to India’s government bond market but growing quickly as companies shift away from bank loans. Regulators have long wanted wider retail access to corporate bonds, and tokenization in small denominations is one route to it, since a tokenized bond can be split into units a few thousand rupees in size and traded on ordinary investing apps rather than through institutional terminals.
The secondary market is the other weak point the pilot aims at. Indian corporate bonds trade thinly after issuance, with wide spreads and little price discovery between interest payment dates. A shared ledger with continuous trading could, in principle, give mid-sized investors prices they can actually rely on, something the current request-for-quote system has never delivered for anyone below the top tier of institutions.
The regulatory wiring
India’s setup is unusual because two regulators share the ground. SEBI governs the securities, the depositories and investor protection. The RBI governs the digital rupee and any bank money moving against the tokens. The pilot works because both agreed on a shared ledger design in which the bond token and the cash token sit under coordinated control, with the RBI’s wholesale CBDC as the settlement asset.
NPCI, the organization behind the UPI payment system, announced upgrades alongside the pilot, and officials have framed the whole package as a step toward moving India’s post-trade infrastructure onto programmable rails. The government’s broader digital economy push has already made UPI the world’s largest retail payment system by volume, and the central bank wants the same kind of domestic standard-setting in capital markets.
Risks and open questions
The hard problems are operational, not conceptual. Tokenized bonds need legal clarity on what a token holder actually owns if the issuer defaults, and India’s insolvency process has not yet been tested against a tokenized claim. Cybersecurity on the shared ledger becomes critical infrastructure, and the depositories will have to run blockchain systems alongside their existing books for years during any transition.
There is also a question of scale. The pilot covers a slice of the corporate bond market, and forcing the whole market onto new rails is a multiyear project with real switching costs for brokers and custodians. The immediate beneficiaries are issuers with frequent refinancing needs, who can compress settlement risk, and retail investors, who get smaller tradable units.
Tax treatment is another open file. Coupon payments on tokenized bonds flow through smart contracts, and India’s withholding tax rules were written for bank transfers. Officials have said the pilot will surface these issues, but resolving them will take legislation, not circulars.
Foreign access remains unresolved too. Global funds hold a meaningful share of Indian corporate paper, and it is not yet clear whether offshore investors will be able to hold tokenized bonds directly or will have to keep using the old depository route. SEBI has said the question will be answered before any full rollout, since cutting foreign investors off from the new rails would defeat the purpose.
If the pilot performs, SEBI has signaled it will extend instant settlement to government bond trades next, which would put India ahead of both the United States, which is moving to same-day settlement in 2027, and the euro area, where the ECB’s wholesale settlement work is still in trials. For a market that has historically followed Western infrastructure, India is positioning itself to set the standard instead.