India has reached a decisive milestone in blockchain adoption for regulated financial markets. On September 7, 2026, the country officially launched the Demat 2.0 program, a pilot enabling the issuance and settlement of corporate bonds as digital tokens through the country’s central bank digital currency. The inaugural operation, conducted by REC Limited, attracted nearly eight times oversubscription, signaling strong institutional appetite for this disruptive innovation.
🔑 Key Takeaways
- REC Limited raised 500 billion rupees (~$56M) in tokenized bonds, with 796 billion rupees in demand
- Atomic Delivery-versus-Payment mechanism combines distributed ledger securities with wholesale digital rupee
- Demat 2.0 infrastructure built on NSDL and CDSL depositories under RBI and SEBI oversight
- Target market represents 59 trillion rupees (~$620B)
- Secondary market expected by December 2026
A Record-Breaking Inaugural Bond Issuance for the Indian Market
REC Limited, a government-owned power sector financing company under India’s Ministry of Power, conducted the country’s first pilot tokenized bond issuance on September 7, 2026. The operation comprised a base issuance of 100 billion rupees with a greenshoe option of 400 billion rupees, bringing total accepted amount to 500 billion rupees, approximately $56 million. The issuance received approximately 796 billion rupees in offers, representing demand nearly eight times the base issuance size.
REC’s issued bond carries an annual coupon rate of 7.30% with a maturity of one year and nine months. It was placed through the National Stock Exchange (NSE) electronic auction platform. Two additional issuers participated in the pilot: Larsen & Toubro, an engineering and construction conglomerate, and non-bank lender IIFL Finance. Combined, the three issuances gathered a total of 1,025 billion rupees. REC’s issuance alone accounts for 500 billion rupees, while IIFL Finance raised approximately 25 billion rupees ($2.8 million).
Atomic Delivery-versus-Payment: The Core Mechanism
The technical backbone of Demat 2.0 relies on what market participants call atomic Delivery-versus-Payment (DvP), referring to simultaneous settlement of securities delivery against payment. Concretely, tokenized bonds are recorded and tracked through Demat 2.0 infrastructure, a permissioned distributed ledger system developed by Indian depositories NSDL and CDSL. The payment leg utilizes the RBI’s wholesale digital rupee, the e₹-W in its wholesale version.
This combination enables the transfer of securities and fund movements to occur simultaneously within a single settlement process, eliminating the timing gap between the two legs of a transaction. To participate in these operations, investors must hold two distinct digital accounts: a wholesale digital currency wallet provided by a commercial bank, and an electronic securities wallet developed under the Demat 2.0 framework.
« Atomic DvP settlement and shared ledger transparency introduce these technologies to Indian capital markets for the first time. »
REC Limited, Launch Statement
Subsequent trading can only occur between participants holding both a central bank digital currency wallet and compatible securities wallets. The bonds feature an initial three-month lockup period.
A Structured Regulatory Framework Through SEBI’s Sandbox
The operation’s regulatory framework falls under SEBI’s (Securities and Exchange Board of India) regulatory sandbox framework. On May 27, 2026, Tuhin Kanta Pandey, SEBI chairperson, announced that the regulator had approved limited testing of distributed ledger technology for corporate bond trading and settlement. He stated at the time that the RBI was working on necessary guidelines for the project, while SEBI and exchanges were ready to act once the central bank’s framework was finalized. Pandey estimated at the time that implementation could take six to nine months.
| Regulatory Milestone | Date | Responsible Party |
|---|---|---|
| DLT sandbox approval | May 27, 2026 | SEBI |
| Wholesale CBDC framework finalized | August 2026 | RBI |
| First pilot issuance | September 7, 2026 | REC Limited |
| Secondary market launch (planned) | December 2026 | NSE / BSE |
India’s Strategy: Regulated Tokenization Versus Speculative Cryptocurrencies
Indian authorities maintain a clear distinction between tokenized digital assets under regulated finance and private cryptocurrencies. In July 2026, the RBI reportedly told legislators that tokenized government securities, corporate bonds, and other regulated financial assets must be distinguished from cryptocurrencies, so that restrictions on speculative digital assets do not interfere with regulated tokenization projects.
India’s approach differs significantly from that adopted toward private cryptocurrencies. Rather than directing investors toward open blockchain markets, Indian regulators integrate tokenization within the financial system they already control, with banks, depositories, and central bank digital currency at the center of the framework.
India’s CBDC Pilot Timeline
Demat 2.0 deployment builds upon a broader history of central bank digital currency work in India. The RBI launched its wholesale CBDC pilot in November 2022, initially using the e₹-W system for government securities transaction settlement. A retail digital currency pilot followed in December 2022. In October 2025, the central bank expanded this work to a CBDC-linked deposits pilot within the wholesale digital currency system, with a limited group of participating banks.
« Tokenized government securities, corporate bonds, and other regulated financial assets must be distinguished from cryptocurrencies, so that restrictions on speculative digital assets do not interfere with regulated tokenization projects. »
RBI, Communication to Legislators, July 2026
Beyond Bonds: Real Estate Tokenization on the Horizon
The broader context of tokenization in India extends beyond the bond sector. In July 2026, Devendra Fadnavis, Chief Minister of Maharashtra, requested officials to prepare draft legislation for a framework governing tokenized interests in real estate through blockchain technology. An expert committee including representatives from SEBI, the Bombay Stock Exchange (BSE), and the National Stock Exchange of India (NSE) was tasked with developing this framework.
Outlook and Implications for Capital Markets
While the 500 billion rupee amount from REC’s issuance remains modest relative to the overall Indian bond market — estimated at 59 trillion rupees, approximately $620 billion — the significance of the operation lies less in its volume than in the infrastructure it deploys. Secondary market activity has remained limited thus far, as many institutional investors hold securities to maturity, while retail participation remains relatively low.
Subsequent pilot phases should enable the development of a secondary market for tokenized bonds. According to sources close to the matter cited by Reuters in August, exchanges are expected to establish this secondary market by December 2026. In the longer term, project designers envision extending access to retail investors, though this stage remains contingent on the results of ongoing pilot phases.
The eventual success of this pilot will determine whether tokenized bonds can transition from controlled projects to traded instruments at greater scale in capital markets. India is closely watching similar experiments in other jurisdictions, particularly the Bank for International Settlements’ work on real-world asset (RWA) tokenization, while advocating for an approach that preserves monetary sovereignty and regulatory oversight.
Sources
This article is published for informational and educational purposes only. It does not constitute investment advice in any form. Conduct your own research (DYOR) before making any decisions.
