India, from bond issuance to CBDC settlement... Accelerating financial market tokenization

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India has tokenized corporate bonds worth $107 million and linked them to central bank digital currency (CBDC) settlement.

According to The Crypto Basic on September 12 (local time), the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) launched the Demat 2.0 pilot project. Three companies issued corporate bonds totaling 10.25 billion rupees, or approximately $107 million. The corporate bonds are issued as distributed ledger-based digital tokens. The RBI's wholesale central bank digital currency (CBDC) is used for settlement.

The first issuer was state-owned lender REC. REC raised 5 billion rupees from 18 investors on Monday. Following this, Larsen & Toubro (L&T) issued 5 billion rupees worth of bonds to 4 investors on Wednesday. On the same day, IIFL sold 250 million rupees worth of bonds to 1 investor. The total issuance by the three companies exceeded twice the size of REC's previously announced standalone pilot project.

Demat 2.0 utilizes the existing securities account system. Investors do not need to create a separate securities account or go through KYC procedures again to purchase tokenized bonds. However, they must activate the Demat 2.0 function at the respective depository. For fund settlement, participating banks must also set up wholesale CBDC wallets.

The settlement structure also changes. Corporate bond ownership is recorded on a distributed ledger operated by India's statutory securities depositories. Funds are settled with wholesale CBDC via the RBI's unified market interface. This method eliminates existing settlement delays by simultaneously processing securities and fund transfers. Issuing companies can receive funds on the day of the bid, rather than the traditional 2-3 days later. Interest payments and bond redemptions can also be automated using smart contracts.

SEBI stated that tokenization does not change the legal status of bonds, redemption obligations, or investor protection frameworks. In future stages, it plans to introduce secondary market trading using existing request-for-quote (RFQ) trading platforms. Participation from retail investors will also be promoted. SEBI explained that this is the first case of implementing a structure where corporate bonds are directly issued on a distributed ledger, ownership is recorded by statutory depositories, and settlement is done with CBDC, all within the existing regulated market.

[Article Key Summary]

-India has launched a pilot project for tokenized corporate bonds worth 10.25 billion rupees, or approximately $107 million, involving three companies.

-Tokenized bonds are recorded on a distributed ledger, and RBI's wholesale CBDC is used for settlement.

-By simultaneously processing securities and fund transfers, issuing companies can receive funds on the day of the bid, rather than the traditional 2-3 days.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*