India’s First Tokenised Corporate Bonds Set for September Launch

India is preparing to enter a new phase of digital finance with the launch of its first tokenised corporate bond issue in September. State-owned power sector financier REC is expected to lead the pilot, which will reportedly be worth less than Rs 500 crore, as regulators test whether blockchain-based technology can make bond transactions faster and more efficient.

The pilot issue is expected to be unveiled at a major financial technology event in Mumbai next month. According to people familiar with the development, the bonds will initially be available only to a select group of investors.

The initiative is being developed with the involvement of the Securities and Exchange Board of India and the Reserve Bank of India. However, discussions around the final framework are still underway, meaning some details could change before the launch.

Tokenised bonds are digital versions of traditional securities in which ownership, issuance, trading and settlement are recorded through blockchain or distributed ledger technology. The system could significantly reduce the time required to complete transactions and enable near-instant settlement.

Under the proposed model, investors will require two separate digital accounts to participate. One will be a wholesale central bank digital currency wallet provided by a bank, while the other will be an electronic securities wallet designed specifically to hold tokenised bonds.

India's central bank digital currency, or CBDC, is expected to be used for purchasing the bonds. Depositories are also developing a new digital securities wallet, described as DEMAT 2.0, which will record ownership of tokenised securities through distributed ledger technology.

The system would require investors participating in subsequent trades to hold compatible CBDC and securities wallets. This could create an integrated framework where the transfer of the digital security and the payment for it are completed through linked digital infrastructure.

The initial tokenised bond issue is expected to carry a three-month lock-in period. After that period, stock exchanges are likely to develop a secondary market for the securities, potentially by December, allowing eligible investors to trade the bonds.

The bonds are not expected to be traded through the conventional electronic book provider platform used for many traditional debt issuances.

While the value of the pilot issue is relatively small, the launch could be an important test for India's financial markets. It will allow regulators, depositories and market participants to examine how blockchain-based securities, digital wallets and CBDC payments can operate together within a regulated financial system.

If successful, the experiment could open the door for wider adoption of tokenisation in India's bond market and potentially transform how securities are issued, transferred and settled in the future.