Digital Rupee Payment and Bond Delivery Meet in India: Will Settlement Risk Decrease?

India is testing simultaneous digital rupee payment with bond delivery in its $620 billion corporate bond market.

The Securities and Exchange Board of India (SEBI) has launched the Demat 2.0 pilot. The program integrates electronic accounts where investors hold stocks and bonds with a blockchain-based infrastructure. Corporate bonds are issued as digital tokens in this system, while payments are executed using the Reserve Bank of India’s wholesale digital rupee.

As part of the pilot, the state-controlled energy finance entity REC issued bonds worth approximately 500 crore rupees ($56 million) this month. Larsen & Toubro conducted an issuance of the same size, while the non-banking lender IIFL Finance raised approximately 25 crore rupees ($2.8 million).

Bond and payment meet in the same flow

Demat 2.0 connects the distributed ledger that maintains the records of tokenized bonds with the central bank’s wholesale digital rupee through the Unified Market Interface. Thus, instead of completing the delivery of the bond and the payment separately on different systems, the two transactions proceed together. This structure aims to reduce settlement risk, such as when one party makes the payment but the other fails to deliver the bond.

The fundamental features of the bonds remain unchanged. Fixed interest rates, maturity dates, and investor rights are preserved. While interest payments and redemption processes can be managed through smart contracts, the next phases of the pilot are expected to include secondary market transactions and retail investor access.

In this way, India is moving tokenization into traditional financial infrastructure controlled by banks, custodians, and central bank money, rather than expanding open crypto markets. The pilot does not tokenize the entire $620 billion market; this figure represents the total value of the corporate bond market in India.