India to Pilot Tokenized Corporate Bonds Settled in CBDC

India plans to launch a pilot in September in which REC Limited will issue tokenized corporate bonds settled using a wholesale central bank digital currency (CBDC). The offering is expected to total under 5 billion rupees and will be limited to a select group of institutional investors.

REC Limited, a state-owned power infrastructure finance company, will record the bonds as tokenized securities on distributed ledger technology. The Reserve Bank of India and the Securities and Exchange Board of India are coordinating the pilot to test end-to-end issuance and settlement using digital infrastructure rather than paper certificates or conventional book-entry systems.

Investors taking part must open two digital accounts: a wholesale CBDC wallet provided by a participating bank for payments, and a new electronic securities wallet being built by Indian securities depositories called DEMAT 2.0. DEMAT 2.0 will record bond holdings on a distributed ledger so tokenized bonds can be held and transferred electronically.

One person involved in planning described the payment method: “India’s central bank digital currency will be used to buy the tokenized bonds.”

Participation will be restricted initially to a small set of institutional investors to allow testing of operational, legal and technical aspects. The bonds will carry an initial three-month lockup period. Market participants expect exchanges to develop a secondary market for the tokenized issues by December.

Securities depositories are developing DEMAT 2.0 to provide electronic custody and transfer of tokenized securities. Under the planned arrangement, settlement of bond purchases would occur in wholesale CBDC units while DEMAT 2.0 would provide the ledger-based record of ownership. Banks and exchanges will need to integrate their systems with both the CBDC infrastructure and the new electronic securities wallet.

Regulators and market infrastructure providers will use the pilot to assess technology integration, operational resilience, investor access and compliance with securities laws. Authorities and REC Limited will proceed with the limited issuance to collect data on how the digital currency and ledger recording perform in live market conditions.