On September 10, India introduced Demat 2.0, a pilot project for issuing tokenized corporate bonds with settlements in digital rupees. The launch was announced by the Securities and Exchange Board of India (SEBI).
The initiative was developed in collaboration with the Reserve Bank of India (RBI) and unveiled at the Global Fintech Fest in Mumbai.
Depositories NSDL and CDSL, exchanges NSE and BSE, banks HDFC Bank and ICICI Bank, and the National Payments Corporation of India are involved in the project, reports The Indian Express.
By the time of the presentation, three companies had already issued bonds through the new system totaling 10.25 billion rupees (~$107 million). REC and Larsen & Toubro raised 5 billion rupees ($52.2 million) each, while IIFL raised an additional 250 million rupees ($2.6 million).
Settlement Process
Demat 2.0 links bond ownership records in a distributed ledger with the wholesale digital rupee of the RBI. This is facilitated by the Unified Market Interface, which connects securities transactions and payments.
This integration allows for the simultaneous transfer of bonds to the buyer and funds to the seller, reducing the risk of one party fulfilling obligations while the other has yet to receive payment or assets.
The bonds themselves retain their usual terms, such as interest rates, maturity dates, and investor rights. The change lies in the infrastructure for recording and settling these transactions.
The next step is to automate bond payments. Currently, issuers or their registrars must obtain a list of holders from the depository, calculate amounts, and process payments separately through banks.
In the new system, authorized participants will work with a shared ledger, and smart contracts will facilitate interest payments and debt redemption in digital rupees.
Initial Testing
The first issuance occurred before the official pilot presentation. On September 7, state-owned REC, which finances the energy sector, issued tokenized bonds with a 7.3% interest rate.
With a total raised amount of 5 billion rupees, investor bids reached 7.96 billion rupees ($83.2 million).
Initially, participation is limited to institutional investors. A central bank digital currency wallet and access to the Demat 2.0 infrastructure are required to use the instrument.
Later, secondary trading is expected to be launched, and access will be opened to retail buyers. Currently, it is a limited experiment.
Earlier, in January, the RBI proposed linking BRICS countries’ digital currencies to simplify cross-border trade and tourist payments.
