India’s new tokenised-bond infrastructure has already handled ₹1,025 crore across REC, L&T, and IIFL Finance. The bigger test now is whether faster digital settlement can translate into a more liquid corporate bond market.
India’s experiment with tokenised corporate bonds has moved from a regulatory concept to live market activity, with REC, Larsen & Toubro (L&T), and IIFL Finance raising a combined ₹1,025 crore through tokenised bonds within days.
The development came into focus on September 10 as RBI Governor Sanjay Malhotra and SEBI Chairman Tuhin Kanta Pandey unveiled Demat 2.0 at the Global Fintech Fest 2026 in Mumbai. The project combines distributed-ledger technology for securities with the Reserve Bank of India’s wholesale central bank digital currency (CBDC) for the money leg of transactions.
But the biggest question is no longer whether India can issue a bond on blockchain-based infrastructure.
It can.
The harder question is whether these digital bonds can eventually attract enough participants and trading activity to make the corporate debt market meaningfully more liquid.
That is where Demat 2.0 moves from a technology experiment to a market-structure test.
₹1,025 crore has already moved through the pilot
The pilot has quickly expanded beyond its first transaction.
REC became the first issuer on September 7, raising ₹500 crore through tokenised corporate bonds under SEBI’s regulatory sandbox framework. The issue consisted of a ₹100 crore base size and a ₹400 crore greenshoe option and attracted ₹796 crore of bids. REC accepted ₹500 crore at a 7.30% annual coupon for 1 year and nine months.
L&T followed with another ₹500 crore issue. The engineering major said it became India’s first private-sector corporate to issue a tokenised bond, with the bonds carrying a 7.40% coupon and a three-year tenure.
IIFL Finance then added ₹25 crore through a two-year tokenised bond carrying a 9.10% coupon, making it the first non-PSU NBFC reported to raise funds through the framework. Business Standard said Trust Investment Advisors arranged the issue.
| Issuer | Amount | Coupon | Tenure |
|---|---|---|---|
| REC | ₹500 crore | 7.30% | 1 year 9 months |
| L&T | ₹500 crore | 7.40% | 3 years |
| IIFL Finance | ₹25 crore | 9.10% | 2 years |
| Total | ₹1,025 crore | — | — |
The sequence is important. The test is no longer confined to a government-backed financial institution. It has already moved from REC to a major private-sector borrower and an NBFC, giving the pilot a broader issuer mix within a matter of days.
What is Demat 2.0?
Demat 2.0 is not a new kind of bond, and it is not a cryptocurrency platform.
A tokenised corporate bond remains a conventional debt security: the issuer borrows money, pays interest and repays principal according to the terms of the instrument.
What changes is the infrastructure used to represent ownership and process transactions.
Under the pilot, bond holdings are recorded through the Demat 2.0 infrastructure using distributed-ledger technology rather than the conventional depository ledger. The payment leg is connected to RBI’s wholesale CBDC infrastructure. Business Standard described the arrangement as an extension of the existing demat system rather than a completely separate securities market.
This distinction is crucial for investors because tokenisation does not remove the existing regulatory framework around corporate debt.
The bond remains subject to the applicable issuance, disclosure, listing, credit-rating, and investor-protection requirements.
Why the digital rupee matters
The most important innovation is not simply putting a bond record on a blockchain.
It is connecting the securities side with digital central-bank money.
The architecture is intended to support atomic settlement, where the securities and cash legs move together rather than being handled as disconnected processes. RBI’s broader Unified Market Interface, or UMI, has been designed as next-generation market infrastructure for tokenised financial assets and settlement using wholesale CBDC.
That creates a potentially important efficiency gain.
In conventional market infrastructure, securities, cash, reconciliation and post-trade records can involve several interconnected systems. A tokenised framework can place more of those functions onto linked digital rails.
For issuers and market intermediaries, the potential benefits include fewer manual reconciliations, more direct record matching, and faster processing.
For investors, the attraction is a settlement process designed to reduce the possibility of the securities leg and payment leg getting out of sync.
REC’s first issue showed the infrastructure can work
The REC transaction provides the clearest early proof point.
The company said the ₹500 crore issue was conducted through the NSE Electronic Bidding Platform, while the tokenisation component operated after allotment. REC also said its pay-in, allotment, and listing were completed on the same day.
That is an important distinction.
Demat 2.0 is not necessarily replacing every existing part of the bond-issuance process. The initial bidding mechanism can remain familiar while the settlement and ownership infrastructure changes underneath it.
This is why the pilot is better described as a rewiring of market plumbing rather than the creation of an entirely new bond asset.
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Where the pilot now faces its biggest test
Here is where the market expectation could collide with reality.
Faster settlement does not automatically mean a more liquid bond market.
A tokenised bond may be easier to settle once a buyer and seller are found. It does not, by itself, create the buyer or seller.
That matters because the three current issues are still essentially pilot transactions, and the secondary-market mechanism for tokenised bonds has not yet become a normal part of the market.
Business Standard said market participants see three major requirements before tokenised bonds can move meaningfully beyond the pilot stage: liquidity, a mechanism for secondary trading, and interoperability between conventional demat accounts and Demat 2.0. The publication also flagged cybersecurity and operational resilience as issues that will become increasingly important as the system expands.
That creates the central expectation gap around Demat 2.0:
The technology may make a transaction faster, but the market still has to prove that the asset itself can trade efficiently.
Secondary trading is the next milestone
Earlier Reuters reporting on the planned pilot said the initial tokenised bonds would be restricted to selected investors and that the early framework contemplated a lock-in period, with a secondary-market mechanism expected to be developed later. Reuters also reported that compatible securities and CBDC wallets would initially be required for participants.
Those earlier plans should not be treated as a final timetable for the market.
What is clear today is that secondary trading is the next major infrastructure challenge.
Until a functioning transfer mechanism is available and more participants can access the system, the benefit of faster settlement remains limited to a relatively small controlled environment.
That is why the next phase could be more revealing than the ₹1,025 crore already raised.
The first phase demonstrates issuance.
The next phase must demonstrate marketability.
What changes for investors?
For investors participating in the pilot, tokenisation changes the way the security is recorded and settled, but it does not fundamentally change what a corporate bond represents.
The bond still has a face value, coupon, maturity, and issuer obligation.
According to market reporting on the framework, investors do not need to create an entirely new conventional demat account or repeat their KYC process merely to participate in the tokenised securities infrastructure. Instead, the pilot uses the Demat 2.0 system for the securities side, alongside CBDC-based settlement arrangements for the funds leg.
Retail investors, however, are not the immediate beneficiaries.
The current transactions are being conducted with a limited pool of institutional participants as the infrastructure is tested. Reuters had earlier reported that the pilot would initially be restricted to selected investors.
So investors should not interpret the launch as meaning that any retail investor can immediately start buying Demat 2.0 bonds.
Could tokenisation lower the cost of borrowing?
Potentially, but that remains unproven.
The theoretical benefit is straightforward: fewer manual processes, faster settlement, lower reconciliation requirements and more automated servicing could reduce operational costs for issuers and intermediaries.
Smart-contract functionality could also support automated coupon and redemption processing, potentially reducing some of the administrative work involved in bond servicing.
But whether those savings become large enough to materially reduce borrowing costs is still uncertain.
REC’s first transaction did not provide evidence of a special pricing premium simply because it was tokenised. Business Standard reported that its pricing was in line with rates on REC’s existing bonds trading in the market.
In other words, the market has demonstrated willingness to use the new rails, but it has not yet demonstrated that tokenisation itself commands a valuation or yield advantage.
Why the ₹1,025 crore matters beyond the headline
The ₹1,025 crore figure is small compared with India’s overall corporate bond market.
Its importance lies elsewhere.
REC established that a real issuer could raise money through tokenised debt and attract substantial institutional bidding. L&T demonstrated that a major private-sector company was prepared to use the infrastructure. IIFL Finance extended the experiment into the NBFC segment.
The progression suggests the pilot is already generating a broader proof of concept.
But a proof of concept is not yet a market.
The system will ultimately need enough issuers, investors, intermediaries and trading venues to operate without becoming a parallel liquidity pool isolated from the conventional bond market.
The next risk: fragmentation
The biggest forward-looking risk may therefore be fragmentation rather than technology failure.
If tokenised bonds become easy to issue but difficult to transfer between traditional and tokenised holdings, the market could end up with two pools of liquidity rather than one more efficient market.
Interoperability will become especially important as participation expands. Cybersecurity, resilience and governance will also become more consequential as more valuable securities and payment flows move through tokenised infrastructure. Business Standard has highlighted these exact issues as adoption grows.
The RBI is separately exploring wider tokenisation possibilities through its market infrastructure initiatives, but expansion into other asset classes should be viewed as a future possibility rather than a confirmed rollout plan.
Demat 2.0: What happens next?
India has now answered the first question:
Can corporate bonds actually be issued and settled using tokenised securities and CBDC-linked infrastructure?
The three transactions worth ₹1,025 crore suggest the answer is yes.
The next questions are harder.
Can tokenised bonds develop a viable secondary market? Can holdings move seamlessly between conventional and tokenised infrastructure? Will enough institutional participants join to create genuine liquidity? And can regulators maintain cybersecurity and operational resilience as the system scales?
Until those questions are answered, Demat 2.0 remains a promising pilot rather than a finished replacement for conventional bond-market infrastructure.
That is also what makes the experiment important.
India is no longer testing whether bond tokenisation can work in theory. It is now testing whether faster digital settlement can become a better market.
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This article is for informational purposes only and does not constitute investment advice. Investors should independently verify information and consult SEBI-registered financial advisers before making investment decisions.
