India’s experiment with tokenised corporate bonds has made a promising start, with three issuers raising over Rs 1,000 crore in quick succession. But the bigger test lies ahead: creating a liquid secondary market and eventually bringing retail investors into the fold.
The Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) last week took a significant step towards tokenising the corporate bond market, with three issuances collectively raising Rs 1,025 crore. REC became the first issuer to tap the framework, raising Rs 500 crore, followed by L&T with another Rs 500 crore and IIFL Finance with Rs 25 crore.
Last week, Sebi and RBI launched “Demat 2.0”, a pilot framework for tokenised corporate bonds that combines distributed ledger technology (DLT) with the central bank digital currency (CBDC) at the Global Fintech Fest (GFF) 2026.
“Further issuances can be expected given the initial response to Demat 2.0, particularly as market participants gain greater familiarity with the infrastructure and the pilot progresses. The important point, however, is that the next stage of development should not be judged only by the number or value of primary issuances,” said Manisha Shroff, partner at Khaitan & Co.
NABARD Chairman Shaji Krishnan told FE in an interview that the development finance institution would also look at raising funds through tokenised bonds, encouraged by the initial response. Tokenisation could reduce operating costs, improve execution speed and price discovery, and enhance overall market efficiency, he said.
One of the key attractions of tokenisation is its potential to streamline transactions and accelerate settlement. Transactions can be settled on a delivery-versus-payment basis using CBDC, reducing settlement and counterparty risks.
Primary Issuance Success
The real challenge, however, will emerge once tokenised bonds move beyond primary issuance.
Sebi, in a release on September 10, outlined a three-stage rollout of the pilot. Subsequent phases will allow buying and selling of tokenised bonds through existing request-for-quote (RFQ) platforms before eventually opening the framework to retail investors.
Nishchay Nath, founder and CEO of BondScanner, said the initiative remains a phased pilot that is currently issuance-led and institution-focused. “What will matter is secondary-market depth and the carefully sequenced path to retail participation,” he said.
Shroff said secondary trading would be a far more significant test for the framework. “A functioning secondary market requires broader participation, reliable price discovery, sufficient liquidity and integration with existing trading infrastructure. If the project can demonstrate that tokenisation can deliver these benefits without creating additional risks, the number of issuers and investors will potentially increase.”
Liquidity, in particular, will be critical. As Shroff pointed out, tokenisation can make a security easier to transfer, but it cannot create buyers on its own.
Market participants cautioned that while tokenisation could make the bond market more efficient, it would not by itself solve some of its longstanding challenges. It neither eliminates credit risk nor guarantees liquidity. Addressing those issues will require a broader investor base and deeper secondary-market trading.
Regulatory Framework
Regulators are also grappling with challenges that could become more pronounced as tokenisation scales up.
Speaking at GFF, RBI Executive Director P Vasudevan flagged issues around legal clarity, data certainty, privacy and interoperability. “A big challenge is interoperability. If multiple platforms emerge for tokenised assets and digital money, they will need to work with one another rather than develop as isolated systems,” he said.
Meanwhile, the RBI is exploring whether tokenisation can be extended to a wider range of assets. Having already tested the concept with certificates of deposit, the central bank is now examining the tokenisation of gold.