SEBI launches Demat 2.0, tokenizes India’s $620 billion bond market

India’s securities regulator has begun moving pieces of its $620 billion corporate bond market onto a distributed ledger. The Securities and Exchange Board of India (SEBI), working with the Reserve Bank of India (RBI), launched a pilot called Demat 2.0 this week in Mumbai, and three issuers, REC, Larsen & Toubro and IIFL Finance, have already raised a combined ₹1,025 crore (roughly $116 million) through it.

Demat 2.0 brings digital rupee settlement to corporate bonds

At the center of the project is digital rupee settlement, which connects tokenized securities with the RBI’s wholesale central bank digital currency through its Unified Market Interface.

Under the model, the bond and its corresponding payment are designed to move together in what regulators describe as atomic settlement. This contrasts with conventional processes in which securities and funds may move through separate systems and settlement can take several days.

The pilot is designed to allow issuers to receive proceeds on the day of bidding rather than waiting for the conventional settlement cycle.

The first transaction came from state-owned REC on Sept. 7. The company raised ₹500 crore from 18 investors. Larsen & Toubro followed on Sept. 9 with another ₹500 crore transaction involving four investors, while IIFL completed a ₹25 crore issuance to a single investor the same day.

The three transactions bring the value processed through the pilot to ₹1,025 crore. However, that figure represents the size of the initial experiment rather than the amount of India’s broader corporate bond market that has moved onto the new infrastructure.

Tokenization does not change bond investor rights

An important feature of the digital rupee settlement model is that tokenization changes the technology supporting the securities rather than the underlying legal nature of the bonds.

The tokenized instruments retain their existing interest rates, maturity terms and legal rights. Conventional requirements covering credit ratings, debenture trustees, exchange listings and corporate disclosures also remain applicable.

SEBI has described the initiative as a native distributed-ledger issuance model in which regulated depositories maintain ownership records while central bank money handles the cash side of the transaction.

The structure therefore sits closer to institutional tokenization than to decentralized finance.

Faster digital rupee settlement could reshape bond markets

The potential significance of digital rupee settlement extends beyond the first three transactions. Under the pilot, smart contracts can be used for certain corporate actions, including interest payments and bond redemptions.

Instead of relying entirely on manual processes to identify bondholders, calculate payments and distribute funds, programmed instructions can trigger payments through the digital infrastructure.

SEBI expects this approach to reduce manual reconciliation, file-sharing and validation requirements. However, the regulator has not yet published audited evidence showing how much the pilot has reduced operating costs or transaction errors.

A later phase is expected to connect tokenized bonds with existing request-for-quote platforms, allowing eligible participants to trade the securities after issuance.

The regulator has indicated that sellers could receive digital rupee settlement immediately once secondary trading becomes available, compared with the two-to-three-day process associated with the earlier system.

Retail investors are expected to gain access at a subsequent stage. They would continue using existing demat accounts but would need the appropriate Demat 2.0 activation and access to a compatible wholesale digital rupee wallet.

What digital rupee settlement means for crypto investors

The digital rupee settlement framework shows that distributed ledgers can be used without relying on permissionless cryptocurrencies. India is effectively separating the technology of tokenization from the monetary asset used to complete the transaction.

The digital rupee settlement approach also highlights the potential role of central bank digital currencies in tokenized financial markets. In this model, the CBDC functions as the settlement asset while the tokenized bond represents the underlying security.

Only ₹1,025 crore has been issued through Demat 2.0 so far, and SEBI has not committed to a full-scale rollout. There is also no verified secondary-market performance data yet showing how the new system affects bond liquidity, pricing or investor participation.

The immediate importance of digital rupee settlement therefore lies less in the size of the transactions and more in the infrastructure being tested.

If subsequent phases successfully introduce secondary trading and retail participation, the model could provide a regulated pathway for tokenized securities to operate alongside conventional financial markets.

The Indian pilot suggests that the next phase of tokenization may focus not only on creating digital assets, but also on rebuilding the settlement systems that support traditional markets.