News in Short

• India could launch its first tokenised corporate bonds next month.
• REC is expected to issue bonds worth less than Rs. 500 crore.
• The pilot will combine tokenised securities with the RBI’s digital rupee.
• DEMAT 2.0 will use distributed ledger technology to record bond ownership.
• The bonds will initially have a three-month lock-in period.
• A secondary market for the tokenised bonds could emerge by December.

India could launch its first tokenised corporate bonds next month, with state-owned REC expected to issue bonds worth less than Rs. 500 crore as part of a regulatory pilot. The experiment will combine the Reserve Bank of India’s (RBI) digital rupee with blockchain-based infrastructure for issuing and settling the securities.

The pilot involves the RBI and Securities and Exchange Board of India (SEBI). It aims to test whether distributed ledger technology can make corporate bond issuance and settlement faster.

Pilot Will Link Digital Rupee With Tokenised Bonds

According to a Reuters report, REC will issue the tokenised bonds as part of the pilot. Initially, only a limited number of investors will get access to the product.

The pilot will use two separate digital accounts. Investors will need one account for the wholesale central bank digital currency (CBDC) wallet provided by their bank and another for their tokenised securities.

Meanwhile, Indian depositories are developing the securities wallet under a system called DEMAT 2.0. The system will use distributed ledger technology to record ownership of the bonds.

As a result, investors will need compatible securities and wholesale CBDC wallets to participate in transactions involving the tokenised bonds.

Digital Rupee Will Handle Settlement

The pilot will use the RBI’s digital rupee as the cash component of each transaction. The connected digital infrastructure will allow the cash and tokenised securities to move between participants.

This approach could allow settlements to happen almost instantly once the required assets change hands. It will also test bond settlement without relying on the traditional electronic book service provider system.

The pilot could therefore show whether blockchain-based infrastructure can reduce the time and processes involved in corporate bond transactions.

Tokenised Bonds Could Get a Secondary Market

The tokenised bonds will initially carry a three-month lock-in period. Investors will not be able to trade them on a secondary market during this period.

However, exchanges could create a secondary market for the bonds by December. Once the lock-in period ends, eligible investors with the required wallets could trade the securities.

The distributed ledger will also maintain the ownership history of each bond. Therefore, the system can track transfers between authorised investors.

India Has Been Exploring Digital Rupee Use Cases

The tokenised bond experiment adds another potential use case for India’s digital rupee. The government has previously highlighted the potential of an RBI-backed digital currency for faster and traceable transactions.

The new pilot will now test how the digital rupee can work alongside tokenised securities and distributed ledger technology in the corporate bond market.