Demat 2.0: India Tokenises Its Bond Market

Thirty years after paper ended, the ledger itself is changing

Thirty years ago, an Indian investor who purchased shares had to wait for a paper certificate to arrive by post, with every risk of loss or forgery along the way. The introduction of the demat account in 1996 ended that system so completely that most young investors today have never seen a share certificate. On September 10, 2026, RBI Governor Sanjay Malhotra and SEBI Chairman Tuhin Kanta Pandey announced the next stage of that transition: Demat 2.0, a live pilot in which corporate bonds are issued as digital tokens on a private ledger operated by NSDL and CDSL and are settled in the RBI's wholesale digital rupee.

The initial figures are modest. According to SEBI's disclosures, REC raised ₹500 crore from 18 investors, Larsen & Toubro raised ₹500 crore from four, and IIFL Finance raised ₹25 crore from a single investor, taking the total to ₹1,025 crore, or about $107 million. This is a small fraction of a corporate bond market estimated at roughly $620 billion, but every significant change in market infrastructure begins as a limited test.

Demat 2.0 is the right idea, built the right way, and it deserves strong support, because of three quieter choices: the bond stays legally what it was, the money and the bond move together, and the whole system runs through institutions that investors already trust.

Why the design deserves support

The first strength is regulatory restraint. SEBI's FAQ states that the token is the corporate bond, that it remains a security under the Securities Contracts (Regulation) Act, 1956, and that it retains the same ISIN, coupon, rating and investor rights. The depository remains the legal record of ownership, investors use their existing demat accounts and KYC, and the depository holds the cryptographic keys on their behalf. IOSCO's 2025 report on tokenisation identifies uncertainty over legal ownership as one of the principal risks holding tokenised markets back. India has addressed that risk at the outset, so an insurer permitted to buy an L&T bond today may buy its tokenised version tomorrow without any new rulebook.

The second strength lies in the settlement of funds. NITI Aayog's report on deepening the corporate bond market notes that many over-the-counter trades still settle bilaterally, with the bond and the cash moving separately, which exposes the seller to the risk of non-payment. Demat 2.0 links the bond ledger to the wholesale digital rupee so that both legs settle together or not at all, and SEBI's press release states that issue proceeds, which previously took two to three days, now reach the issuer on the bidding day. IOSCO has identified the lack of high-quality settlement assets as a central reason why tokenisation has not scaled globally, and the Bank for International Settlements, in its 2025 Annual Economic Report, argued that the future financial system should rest on tokenised central bank money. India is translating that principle into practice, while also giving the wholesale e-rupee a meaningful function.

The third strength is that the pilot builds on existing institutions rather than replacing them. Issuers continue to use the exchanges' Electronic Bidding Platform, future trades will be priced on the existing request-for-quote platforms, and NPCI, the organisation behind UPI, provides technical support. Prateek Gupta of Mudrex told Business Today that India is applying its digital public infrastructure model to a new asset class. Smart contracts can execute coupon and redemption payments automatically, reducing the manual reconciliation that makes bond servicing slow and error-prone. In his launch address, Chairman Pandey posed the question of how innovation can be scaled without scaling risk at the same pace, and the design of the pilot indicates that the regulator has taken that question seriously.

The way forward

Demat 2.0 has addressed the foundational questions correctly: the bond is legally unchanged, it is paid for in central bank money at the moment ownership transfers, and it operates through institutions that investors already trust. However, a pilot remains a promise, and this one will ultimately be judged by whether Stage II materialises and brings new participants into the market.

First, SEBI and the RBI should publish a dated roadmap covering the duration of the sandbox and the commencement of secondary trading and retail access, together with quarterly data on issuers, investors, atomic settlements and failed transactions. Second, access to the wholesale e-rupee must be widened, since at present an investor can participate only if its own bank offers a wallet, which effectively confines the pilot to a small group of large institutions. Mutual funds, brokers and online bond platforms require a route of entry.

Third, the new infrastructure should be used to address the constraints already identified by NITI Aayog, for instance by permitting tokenised bonds in instant repo and intraday collateral arrangements, and by examining whether automated servicing can reduce issuance costs for smaller and lower-rated companies. Fourth, when retail investors are admitted, SEBI should retain depository-held keys, existing KYC and small ticket sizes, and should communicate clearly that a tokenised bond carries exactly the same credit risk as any other bond.

The demat account succeeded not on the day NSDL opened, but when ordinary investors could no longer imagine waiting for share certificates in the post. Demat 2.0 should be measured against the same standard. If, within two or three years, a salaried investor in Delhi or Coimbatore can purchase a small portion of an REC bond on her phone and sell it the same afternoon, with the money and the bond exchanged in a single secure step, the pilot will have justified its name. The foundation has been laid correctly; the task now is to set a timeline and open the market to the public.

Sources:

1. Business Today. "Sebi's Demat 2.0 Lays Groundwork for Tokenising More Regulated Financial Assets." Business Today, September 12, 2026. https://www.businesstoday.in/markets/story/sebis-demat-2-0-lays-groundwork-for-tokenising-more-regulated-financial-assets-555019-2026-09-12.

2. CoinDesk. "India Starts Tokenizing $620 Billion Corporate Bond Market with Digital Rupee Settlement." CoinDesk, September 11, 2026. https://www.coindesk.com/markets/2026/09/11/india-starts-tokenizing-usd620-billion-corporate-bond-market-with-digital-rupee-settlement.

3. Decrypt. "India Begins Tokenizing Its $620 Billion Corporate Bond Market." Decrypt, September 2026. https://decrypt.co/378120/india-begins-tokenizing-its-620-billion-corporate-bond-market.

4. MediaNama. "Explained: What SEBI's Demat 2.0 Means." MediaNama, September 2026. https://www.medianama.com/2026/09/223-sebis-demat-2-0-tokenised-corporate-bonds/.

5. Pandey, Tuhin Kanta. "Address at Global Fintech Fest 2026." Speech, Mumbai, September 10, 2026. Securities and Exchange Board of India. https://www.sebi.gov.in/sebi_data/attachdocs/sep-2026/1789040515085.pdf.

6. Securities and Exchange Board of India. "FAQs on Demat 2.0: Pilot Project for Tokenised Corporate Bonds." Mumbai: SEBI, September 2026. https://www.sebi.gov.in/sebi_data/faqfiles/sep-2026/1789049630065.pdf.

7. Securities and Exchange Board of India. "Issue Details of the First Tokenised Corporate Bond Issuances under Demat 2.0." Mumbai: SEBI, September 2026. https://www.sebi.gov.in/sebi_data/attachdocs/sep-2026/1789039783353.pdf.

8. Securities and Exchange Board of India. "Successful Launch of Demat 2.0: Pilot Project for Tokenised Corporate Bonds." Press Release No. 56/2026, September 10, 2026. https://www.sebi.gov.in/media-and-notifications/press-releases/sep-2026/successful-launch-of-demat-2-0-pilot-project-for-tokenised-corporate-bonds_104418.html.

9. The Block. "India's SEBI Demat 2.0 Pilot Debuts with Over $100 Million in Tokenized Bonds." The Block, September 11, 2026. https://www.theblock.co/news/regulation/2026-09-11-indias-sebi-demat-2-0-pilot-debuts-with-over-100-million-in-tokenized-bonds-414252.

10. The Industry Spread. "SEBI and RBI Open a Demat 2.0 Tokenised Bond Pilot." The Industry Spread, October 1, 2026. https://theindustryspread.com/sebi-rbi-open-demat-2-0-tokenised-bond-pilot/.