Tokenised corporate bonds: Demat 2.0 and the questions it leaves to the documents
SEBI and the Reserve Bank have taken three corporate bond issues, aggregating ₹1,025 crore, onto a distributed ledger with the funds leg settled in central bank digital currency. The instrument is unchanged in law. The documentation around it now has work to do.
What has been announced
On 10 September 2026 SEBI announced the launch of “Demat 2.0”, a pilot on the tokenisation of corporate bonds, jointly with the Reserve Bank at the Global Fintech Fest in Mumbai. Under the pilot a corporate bond is issued as a native digital token on a private, permissioned distributed ledger owned by the depositories. The ledger is connected to the Reserve Bank’s wholesale central bank digital currency through its Unified Market Interface, so that the securities leg and the funds leg settle atomically: either both move or neither does.
Coupon, redemption and other scheduled corporate actions are encoded into the token as a smart contract and execute against the holdings recorded on the ledger on the relevant record date. SEBI’s stated gains are same-day receipt of issue proceeds instead of the usual two to three days, immediate receipt of sale proceeds in the secondary market, the elimination of settlement risk, and the removal of the reconciliation that servicing a bond currently requires.
Three issuers have used the pilot so far. REC Limited raised ₹500 crore from 18 investors on 7 September 2026, L&T Limited raised ₹500 crore from four investors on 9 September, and IIFL raised ₹25 crore from a single investor on the same day.
| Item | Position |
|---|---|
| Announcement | SEBI Press Release No. 56/2026 dated 10 September 2026, with FAQs issued alongside |
| Regulatory basis | SEBI’s Regulatory Sandbox. Any relaxation required for the pilot is granted within that framework, for a defined scope and period |
| Character of the instrument | A security under the Securities Contracts (Regulation) Act, 1956. Same ISIN, coupon, maturity, covenants, rating, security and investor rights as a conventional dematerialised bond |
| Record of title | The depository remains the authoritative record of beneficial ownership under the Depositories Act, 1996. The ledger is the form in which that record is maintained |
| Custody of keys | Held and managed by the depositories on behalf of investors. No self-custody and no separate technology required of issuers or investors |
| Settlement | Atomic delivery versus payment. Funds leg in wholesale e₹ through the Reserve Bank’s Unified Market Interface |
| Issuance route | The existing electronic bidding platform. The ISIN is obtained in the usual manner and flagged as a pilot or tokenised ISIN; bidding and allotment timelines are unchanged |
| Participation | Institutional in the first stage. The Demat 2.0 account is an extension of the existing demat account, existing KYC applies, and a CBDC wallet with a participating bank is required |
| Issuances to date | REC Limited ₹500 crore, L&T Limited ₹500 crore and IIFL ₹25 crore, aggregating ₹1,025 crore |
| Stages ahead | Secondary trading through the existing RFQ and OTC reporting platforms with retail access; thereafter, extension of nodes to rating agencies, depository participants and other regulated entities, and to further instruments |
What does not change
SEBI is emphatic that tokenisation creates no new asset class. The token is the bond. Requirements as to credit rating, debenture trustees, listing, disclosure, investment eligibility, valuation and classification continue to apply in full, and a freeze, attachment or direction that applies to the demat account or the ISIN applies equally to the linked tokenised holding.
Three design choices are worth noting, because they are what keep the legal analysis stable. The statutory depositories own the ledger and remain the authoritative record of ownership. The depositories, not investors, hold the private keys, so the holding is intermediated rather than bearer and remains amenable to attachment, to the creation of security, and to the control of a resolution professional. And there is no separate trading venue: the existing RFQ and OTC reporting platforms are linked to the ledger, so liquidity is not split between two markets.
| Aspect | Conventional demat | Under the pilot |
|---|---|---|
| Proceeds to the issuer | Generally two to three days after bidding | Same day |
| Secondary settlement | Two to three days, with counterparty exposure in the interval | Atomic; the interval, and the exposure, disappear |
| Coupon and redemption | Issuer or registrar draws the holder list, computes amounts and routes payment through the banking channel | Smart contract credits e₹ to holders’ wallets on the due date |
| Trading venue | Exchange RFQ and OTC reporting platforms | The same platforms, linked to the ledger |
| Investor account | Existing demat account | The same account with Demat 2.0 enabled, plus a CBDC wallet. No fresh KYC |
| Legal character and rights | — | Unchanged |
Where the legal work actually sits
A sandbox, not yet a framework
The pilot is conducted under SEBI’s Regulatory Sandbox, and relaxations, where any are needed, are given within that framework for a defined scope and period. Two consequences follow. The placement memorandum should describe the pilot and its basis rather than present the arrangement as settled market infrastructure, and no issuer should assume that a relaxation obtained for the pilot will survive into a general framework. Obligations under the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 and the listing regulations are untouched by participation.
The deed governs; the code performs
The bond’s coupon rate, payment dates, day-count convention and redemption terms are written into the token. They are also written into the debenture trust deed and the disclosure document. Terms recorded twice can diverge, whether through a drafting error, an amendment, or a consent that alters payment dates. The documentation should say expressly that the deed prevails over the encoded parameters, provide a mechanism for correcting the ledger, and allocate responsibility between issuer, registrar, depository and platform for an execution that pays the wrong amount on the right date.
Automatic payment and the trustee’s function
Payment now executes from the ledger against record-date holdings rather than on the issuer’s instruction. The trustee’s duties under Section 71 of the Companies Act, 2013, the SEBI (Debenture Trustees) Regulations, 1993 and the non-convertible securities regulations are unchanged, but the mechanics the trustee supervises are not. Boards should settle, before the first issue, who may suspend or override execution and on what evidence: on an event of default, on acceleration, on a scheme of arrangement, or on a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016. A payment that cannot be stopped is not a convenience in any of those situations.
Withholding does not automate itself
Since the Finance Act, 2023 omitted clause (ix) of the proviso to Section 193 of the Income-tax Act, 1961, interest on listed debentures held in dematerialised form is subject to deduction at source. A smart contract that credits e₹ to a holder’s wallet on the due date does not displace the issuer’s obligation to deduct, deposit and report, nor its obligation to give effect to lower and nil deduction certificates under Section 197, to declarations filed by holders, and to treaty rates for non-residents. The payment logic must therefore compute a net figure, and the record-date data must be capable of carrying each holder’s tax status. This is the single most likely point of operational failure in an automated coupon, and it is an issuer’s exposure, not the platform’s.
The interim exit is not atomic
Until secondary trading is enabled, an investor wishing to exit may request a peer-to-peer, demat-to-demat transfer through the depositories, with the payment leg completed outside the atomic architecture through CBDC or ordinary banking channels. That is the one point in the design where delivery and payment come apart again, and the counterparty risk the pilot is designed to remove returns in full. Such transfers should be papered as ordinary off-market transfers, with a transfer instruction, evidence of consideration and of pricing, and stamp duty collected through the depository under Section 9A of the Indian Stamp Act, 1899.
Mandates, custody and internal authority
Investment eligibility follows the characteristics of the security and not the database technology, so a tokenised line that would be a permitted investment in conventional form remains one. Internal documents are less accommodating. Investment policies, fund documents, custody agreements and board or trustee delegations frequently describe permitted holdings by reference to settlement and custody arrangements drafted long before this pilot. Those should be read, and where necessary refreshed, before a first subscription rather than after it.
For issuers weighing participation
The attraction for an issuer is same-day proceeds and the removal of manual servicing; the cost is a first-of-its-kind operational dependency and a documentation set that has to be built rather than borrowed. Participation so far has been tightly curated, at between one and eighteen investors per issue, which suggests that a first tokenised line is realistically a small, wholly institutional issue rather than a benchmark deal. Treasury teams considering one should also confirm the wallet arrangements at the participating bank, including linkage to the designated account and the cut-off timings on which same-day receipt depends.
The ANSV take
The conservatism of the design is the point of it. By leaving the statutory depository as the authoritative record, keeping the keys with the depository, and refusing a separate trading venue, SEBI has left the law of the instrument where it was and confined the experiment to the plumbing. That is a sound way to run a pilot, and it is why the interesting risk has moved out of the instrument and into the documents.
Three things we would want settled before a tokenised issue prices. A precedence clause, so that the trust deed governs where the encoded parameters and the deed diverge. An express override, so that execution can be halted on default, acceleration or moratorium by a named authority on defined evidence. And a withholding design that computes a net coupon and accommodates Section 197 certificates, holder declarations and treaty rates. None of this is exotic. It is drafting that has not previously been needed, which is a different thing from drafting that is difficult.
The question to watch as the pilot moves to its second stage is what happens to the trustee’s oversight function when servicing is continuous and automatic, and to whom an investor looks when the ledger and the deed disagree. The FAQs answer the first half of that question by preserving the trustee’s duties. The second half will be answered in the trust deeds, not in the circulars.
Board and treasury checklist
- Record the sandbox basis of the issue in the board note and describe it in the disclosure document.
- Insert a precedence clause making the debenture trust deed prevail over the encoded parameters, with a stated mechanism for correcting the ledger.
- Allocate liability between issuer, registrar, depository and platform for erroneous execution, and test the indemnity chain against that allocation.
- Agree an override protocol for default, acceleration, schemes and a Section 14 moratorium, naming the authority and the evidence required.
- Design the withholding mechanics: net computation, Section 197 certificates, holder declarations, treaty rates, and responsibility for deposit and returns.
- Confirm CBDC wallet arrangements with the participating bank, including linkage to the designated account and settlement cut-offs.
- Adopt a documentation pack for interim peer-to-peer transfers, including stamp duty collection through the depository.
- Review investment policy, custody agreements and delegations before a first subscription, and refresh the investment committee or trustee mandate where they describe custody by reference to conventional settlement.
- Check that disclosure describes the tokenised ISIN, the pilot basis and the settlement mechanism, and that continuing disclosure obligations are mapped to the new servicing flow.
References
- SEBI, Press Release No. 56/2026, Successful launch of “Demat 2.0”: Pilot project for Tokenised Corporate Bonds, Mumbai, 10 September 2026.
- SEBI, FAQs on Demat 2.0: Pilot for Tokenised Corporate Bonds, issued with Press Release No. 56/2026.
- Securities Contracts (Regulation) Act, 1956; Depositories Act, 1996.
- Companies Act, 2013, Section 71; SEBI (Debenture Trustees) Regulations, 1993; SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.
- Income-tax Act, 1961, Section 193, as amended by the Finance Act, 2023; Indian Stamp Act, 1899, Section 9A.
- Insolvency and Bankruptcy Code, 2016, Section 14.