India has begun testing the issuance and settlement of corporate bonds based on distributed ledgers. This pilot project, named Demat 2.0, is being driven by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), covering a corporate bond market worth approximately $620 billion, and uses the digital rupee for the settlement process.

The first three companies have completed their issuance.

SEBI indicates that Demat 2.0 allows corporate bonds to be issued and held in the form of digital tokens, with the relevant ledgers managed by statutory custodian institutions. The system also connects to the wholesale digital rupees of RBI through a unified market interface, enabling the simultaneous completion of bond delivery and fund payment.

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In the first phase, three institutions raised a total of 1.025 billion rupees, which is approximately 116 million US dollars. Although blockchain infrastructure is used at the underlying level, the interest rates, maturity arrangements, and investor rights of these bonds have not changed; they are still executed in accordance with the terms of conventional bonds.

Settlement efficiency is a key focus of the pilot program.

Regulators hope to use this approach to shorten settlement times and reduce the risk of transaction failures. SEBI states that India's pilot project promotes native distributed ledger bonds, legal custody records, and CBDC settlements within the same set of regulated market infrastructure.

The participating institutions have also connected to existing financial networks, including NSDL, CDSL, NSE, BSE, HDFC Bank, and ICICI Bank. This means that the pilot project is not an independent system but operates within the framework of the existing market.

Subsequent or extended to secondary trading

For investors, holding such tokenized bonds does not require opening a new account; they can still be kept in the existing Demat account. However, it is necessary to activate the Demat 2.0 feature on the custodian institution's side first. Institutions participating in settlement also need to open a wholesale-type CBDC wallet through cooperative banks.

SEBI plans to test secondary market trading in subsequent stages, by integrating with existing inquiry platforms. At an even later stage, regulators will also assess whether to open it up to retail investors. The current pilot project, worth $116 million, will first be used to test whether tokenized bonds and digital rupee settlements can operate on a larger scale.