India plans to conduct its first pilot issuance of tokenized corporate bonds with settlement in a wholesale central bank digital currency (CBDC).
State-owned financial company REC, which specializes in financing the energy sector, plans to issue tokenized bonds worth less than 5 billion rupees (~$57 million). The issuance will serve as a pilot project for the Indian market, using distributed ledger technology (DLT) for the issuance, recordkeeping, and near-instant settlement of debt securities.
The Reserve Bank of India and the Securities and Exchange Board of India (SEBI) are involved in the initiative. Investors will use India’s wholesale central bank digital currency to purchase the bonds. During the pilot phase, access to the issuance will be limited to a select group of market participants, whose identities haven’t yet been disclosed.
The project infrastructure will use 2 digital wallets simultaneously:
- a bank wallet for the wholesale CBDC, required for settlement;
- a new electronic securities wallet that will record ownership rights to the tokenized bonds.
Indian depositories are developing the DEMAT 2.0 system for this purpose. It is designed to record bond ownership on a DLT network. Subsequent transactions will be available only to participants with compatible wallets for the digital rupee and tokenized securities.
The pilot issuance will include an initial 3-month lock-up period. By December, exchanges are expected to prepare a secondary market for trading the bonds. The tokenized bonds won’t be traded through the traditional electronic bond placement platform.
The project will allow issuance, ownership transfers, and settlement to take place on a single digital infrastructure, reducing the time between trade execution and settlement. If the pilot succeeds, India will join Asian jurisdictions including Hong Kong, China, Japan, and South Korea, which already use distributed ledgers for the issuance and settlement of debt instruments.
