India has set plans to launch its first tokenized corporate bonds next month through an REC issue of less than 5 billion rupees, approximately $57 million, with the digital rupee set to settle transactions on blockchain-based infrastructure.
The Pilot Program
State-owned power financier REC will issue the bonds as part of a pilot being developed with the Reserve Bank of India and the Securities and Exchange Board of India. The planned issuance will test whether distributed ledger technology can shorten the process of issuing, recording and settling corporate debt. Ownership and transaction records will be maintained digitally, allowing settlement to take place almost immediately.
The offering is expected to be unveiled during an annual financial technology event in Mumbai next month. Access will initially be restricted to a limited group of investors while regulators test the system. The RBI, SEBI and REC did not respond to requests for comment.
Digital Rupee Settlement
Participants in the pilot will need two separate digital accounts. One will be a wholesale central bank digital currency wallet supplied by a bank, while the second will hold the tokenized securities. India's depositories are developing the securities wallet under a system called DEMAT 2.0, which will record investors' bond holdings using distributed ledger technology.
Using the RBI's wholesale digital rupee for the cash side of the transaction would allow the transfer of money and securities to occur across connected digital infrastructure. The setup is designed to test settlement without routing the bonds through the conventional electronic book provider system used for debt placements.
Lock-In Period and Secondary Trading
The bonds will carry an initial three-month lock-in period. Exchanges are then expected to develop a secondary market for tokenized bonds by December, allowing eligible participants holding both required wallets to trade the securities after the lock-in ends. The system would retain the bond's ownership record on the distributed ledger as securities move between approved investors.
Building on Earlier Regulatory Work
The planned launch follows regulatory groundwork disclosed earlier this year. SEBI Chairman Tuhin Kanta Pandey said in May that the regulator had approved a limited test of distributed ledger technology for corporate bond trading and settlement. The RBI was working on guidelines needed for the project, while SEBI and exchanges were prepared to proceed once the central bank completed its part of the framework.
India has already been experimenting with central bank money in digital form. The RBI launched its wholesale CBDC pilot in November 2022 for settlement of government securities transactions, with a retail digital rupee pilot following in December 2022. The REC transaction would take the experiments into corporate debt issuance while using the wholesale CBDC as the settlement asset.
Separating Regulated Tokenization From Crypto
India's use of blockchain for regulated securities is developing alongside a more restrictive policy toward cryptocurrencies. The RBI has recommended keeping banks and payment systems insulated from cryptocurrencies while India continues reviewing its digital asset policy. The central bank told lawmakers that tokenized government securities and corporate bonds should be distinguished from cryptocurrencies so restrictions directed at speculative digital assets do not interfere with regulated tokenization projects.
