The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) launched “Demat 2.0” on Thursday — a pilot program to test the tokenisation of corporate bonds and quicker settlement using the central bank digital currency and blockchain technology.
“It explores whether distributed ledger technology can bring the security and settlement legs closer together, enable faster settlement and automate parts of asset servicing,” SEBI Chairman Tuhin Kanta Pandey said while launching the initiative at the Global Fintech Fest in Mumbai.
The initiative is being led by depositories such as the Central Depository Services Ltd (CDSL) and the National Securities Depositories Ltd (NSDL), exchanges like the BSE and the National Stock Exchange (NSE), banks such as the HDFC Bank and ICICI Bank, and the National Payments Corporation of India (NPCI).
The pilot launched with 3 issuances, including a Rs 500 crore issue by Larsen & Toubro that attracted investors such as SBI, Axis Bank, SBI Mutual Fund, and NSDL, among others.
While “Demat 1.0”, launched in 1996, digitised shares that were held in paper form until then, the latest avatar combines tokenised securities with digital settlement assets using smart contracts and settles through the CBDC. The project also focuses on preserving the legal certainty around ownership even as the market experiments with new technology and infrastructure, said Pandey.
About Demat 2.0?
Demat 2.0 is a market infrastructure created for issuing, holding, trading, and settling corporate debt. Under the new framework, each bond is minted as a digital token on a distributed ledger maintained by domestic depositories.
The new mechanism integrates directly with the RBI’s wholesale Central Bank Digital Currency (CBDC), known as e-rupee to make transactions instantaneous. These transactions take place through the RBI's Unified Market Interface. In turn, this eliminates counterparty settlement risk.
Additionally, Demat 2.0 automates corporate actions and asset servicing using smart contracts. In the existing framework, issuers and registrars have to pull records from depositories, calculate individual dues, and manually route payouts across banking channels. However, under Demat 2.0, interest payouts and redemptions are triggered by code and credited to bondholders' CBDC wallets on the due date.
"Funds received by the issuer on the same day as bidding which generally used to take 2-3 days after bidding," Sebi said.
Secondary market investors also receive proceeds instantly upon trade execution instead of having to wait for the completion of standard settlement cycles. In turn, this frees up liquidity for investors. Sebi highlighted that despite the launch of the new framework, the legal protections for tokenised corporate bonds remain identical to conventional demat bonds.
After bonds, the tokenisation exercise can be extended to other asset classes like equity, mutual funds, and gold. A few other debt instruments such as commercial papers and certificates of deposit already trade in a tokenised form using the unified markets interface and CBDC. In fact, RBI Executive Director P. Vasudevan said on Wednesday that the central bank is already exploring a gold tokenisation program.
What is Demat 2.0?
To understand Demat 2.0, it is useful to first understand what happens to a corporate bond after it is issued. In the conventional system, the bond is held electronically in a demat account, while the settlement of money and various corporate actions involve separate processes and intermediaries. Demat 2.0 seeks to bring these processes closer together by creating the bond itself as a digital token on a distributed ledger and linking its settlement with the RBI's wholesale CBDC.
What is Tokenising?
Tokenising financial assets means breaking down an asset into smaller pieces, making it accessible for the retail audience by reducing ownership cost. For example, a bond worth Rs 10 lakh apiece can be broken into smaller units so investors can buy a part for just Rs 100. It also means digitising assets, leading to stronger ownership records and shorter settlement times.
Globally, several jurisdictions have tested bond tokenisation pilots, including Project Helvetia III in Switzerland, Project Evergreen in Hong Kong, as well as institutional experiments by global financial entities. However, most overseas initiatives have been isolated issues on separate, fragmented platforms. The regulator pointed out what sets India's approach apart on the global stage.
The pilot has already recorded strong market participation, with three companies issuing tokenised bonds aggregating to Rs 1,025 crore. REC became the first issuer on September 7, 2026, raising Rs 500 crore from 18 investors. Infrastructure major L&T followed on September 9, 2026, raising Rs 500 crore from four investors, while private lender IIFL raised Rs 25 crore from one investor on the same date.
How Can Investors Invest In Corporate Bonds Under Demat 2.0?
Investors can participate in tokenised corporate bond issues without a separate onboarding mechanism. Under Demat 2.0, the tokenised bonds reside in the investor's current demat account. However, to participate, investors need to enable Demat 2.0 features through their registered depository and maintain an active wholesale CBDC wallet with a participating bank to settle transactions. While the initial phase is focused on institutional issuances, Sebi confirmed that subsequent phases of the pilot will expand trading and open direct access to retail investors.
What Is Distributed Ledger Technology (DLT)?
Distributed Ledger Technology (DLT) is a system for maintaining and updating a shared digital record across multiple authorised participants or institutions. In a traditional system, a central database may maintain the official record of ownership and transactions. Under DLT, the same ledger or a synchronized version of it is maintained across multiple participating entities, with transactions recorded in a tamper-resistant manner.
In Demat 2.0, a corporate bond is created as a digital token on a DLT-based platform. The ownership and transaction records are maintained through the participating regulated market infrastructure institutions. This can make the movement of the security more transparent and traceable while reducing the need for repeated reconciliation between different systems.
Simple Example
The important difference is that the security itself is represented natively as a digital token on the DLT-based infrastructure.
Why Is DLT Important in Demat 2.0?
DLT can help:
- Create a common and synchronised record of transactions.
- Improve the traceability of ownership and transactions.
- Bring the security leg and settlement leg closer together.
- Enable faster settlement.
- Support automation through smart contracts.
- Reduce dependence on multiple reconciliation processes.
In the Demat 2.0 pilot, the DLT infrastructure is maintained by the participating market infrastructure institutions, including domestic depositories.
What Are Smart Contracts?
Another important component of Demat 2.0 is the use of smart contracts. A smart contract is a computer program stored on a blockchain or distributed ledger that automatically executes predefined actions when specified conditions are satisfied.
This can be particularly useful for corporate actions and asset servicing. For example, when interest on a corporate bond becomes due, the relevant conditions can be programmed into the system so that the payment process is triggered automatically. Similarly, redemption payments can be automated.
Under the existing framework, issuers and registrars may need to obtain investor records, calculate individual dues and route payments through banking channels. Demat 2.0 aims to automate parts of this process, with interest payments and redemptions being triggered through smart contracts and credited to investors' CBDC wallets on the due date.
Example in Demat 2.0
Suppose a corporate bond carries an interest payment due on 30 September.
Thus, smart contracts can automate parts of corporate actions and asset servicing.
How Does CBDC Fit Into Demat 2.0?
While DLT represents the security and ownership side, the wholesale CBDC represents the money or settlement side.
Demat 2.0 integrates tokenised corporate bonds with the RBI's wholesale CBDC, or e-rupee, through the Unified Market Interface (UMI). This creates a closer link between the transfer of the bond and the corresponding transfer of money.
For example, when an investor purchases a tokenised corporate bond, the security can be transferred digitally while the corresponding payment is settled using wholesale CBDC. This can enable faster settlement and reduce counterparty settlement risk.
How Does Demat 2.0 Work?
The basic mechanism can be understood through four interconnected components:
1. Tokenised Corporate Bond: The corporate bond is represented as a digital token on a DLT-based ledger.
2. DLT-Based Ownership Record: The distributed ledger records the relevant ownership and transaction information through the regulated market infrastructure.
3. Wholesale CBDC: The settlement leg uses the RBI's wholesale Central Bank Digital Currency (CBDC), or e-rupee.
4. Unified Market Interface: Transactions are integrated with the RBI's Unified Market Interface (UMI), enabling the security and settlement processes to operate in a more integrated manner.
Why Is Demat 2.0 Important?
The initiative can potentially make the corporate bond market more efficient by reducing settlement time, improving liquidity, automating corporate actions and reducing operational and settlement risks.
The pilot has also been designed within the existing regulated market infrastructure. Importantly, the legal protections applicable to tokenised corporate bonds remain the same as those applicable to conventional demat bonds.
The pilot began with three issuances aggregating ₹1,025 crore. REC raised ₹500 crore on September 7, 2026, while L&T raised ₹500 crore and IIFL raised ₹25 crore on September 9, 2026.
The initial phase focuses on institutional participation. According to the supplied SEBI material, subsequent phases are expected to expand trading and eventually provide direct access to retail investors.
Security Leg vs Settlement Leg
In a securities transaction, two things happen together: the security is transferred to the buyer, and the buyer makes the corresponding payment. These are known as the security leg and settlement leg.
In Demat 2.0, the corporate bond is represented as a digital token on a DLT-based system, which handles the security and ownership side. The corresponding payment is settled using the RBI's wholesale CBDC (e-rupee) through the Unified Market Interface (UMI).
The key objective is to bring these two processes closer together, allowing the transfer of the tokenised bond and the corresponding payment to happen in a more integrated and faster manner.
In simple terms:
Security Leg: Transfer of the tokenised corporate bond.
Settlement Leg: Transfer of money through wholesale CBDC.
This integration can help reduce settlement risk and improve the speed and efficiency of transactions.
What Is Counterparty Settlement Risk?
Counterparty settlement risk is the risk that one party to a financial transaction fails to fulfil its obligation. In a securities transaction, the buyer is required to make the payment, while the seller is required to deliver the security.
If one party fulfils its obligation but the other party fails to do so, the transaction is exposed to settlement risk.
Under Demat 2.0, the tokenised security is integrated with settlement through wholesale CBDC, bringing the transfer of the security and the corresponding payment closer together. This can help reduce the risk associated with one party completing its side of the transaction while the other side remains unsettled.
Way Forward
The immediate focus of Demat 2.0 is corporate bonds, but the broader concept of tokenisation could potentially be extended to other financial assets such as equity, mutual funds and gold. The initiative is therefore significant not only for the corporate bond market but also for India's broader efforts to modernise financial market infrastructure.
In simple terms, Demat 2.0 is an attempt to move from merely holding securities digitally to creating a more integrated financial market in which the security itself is tokenised, payment is made using digital central bank money, and processes such as settlement and asset servicing can be automated.
