India Initiates Pilot Program for Tokenized Corporate Bonds Using Digital Rupees

The Securities and Exchange Board of India (SEBI) has launched a pilot program called Demat 2, aimed at tokenizing corporate bonds on a distributed ledger. This initiative allows for the issuance of corporate bonds in digital token form, with settlements conducted using the wholesale digital rupee issued by the Reserve Bank of India. The corporate bond market in India is valued at approximately $620 billion, highlighting the significance of this development.

In the pilot's initial phase, several institutions have successfully raised funds through this system. The state-owned power financing institution REC secured ₹50 billion (around $56 million), while engineering and construction giant Larsen & Toubro also refinanced ₹50 billion. Additionally, non-banking financial institution IIFL Finance raised ₹2.5 billion (approximately $2.8 million), bringing the total raised to around ₹102.5 billion.

The tokenized bonds will maintain fixed interest rates, maturity dates, and investor rights. A key advantage of this system is the simultaneous settlement of tokenized bonds with the digital rupees used for their purchase, which aims to reduce transaction risk. Future phases of the pilot are expected to incorporate smart contracts to manage corporate actions such as interest payments and redemptions, with plans to facilitate secondary market trading and allow retail investors to participate. This pilot reflects India's cautious approach towards integrating tokenization within its regulated financial framework while maintaining a wary stance on private cryptocurrencies.

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Source: KLEA News