India's Tokenized Bond Pilots Clear First Hurdle
Three Indian issuers raised over Rs.775 crore using blockchain-based settlement. The technology works, but liquidity remains the next major barrier.
Rural Electrification Corp. issued its first tokenized corporate bonds for 500 crore rupees. Larsen & Toubro followed with a similar 500 crore rupee issuance. IIFL Finance completed a smaller 25 crore rupee deal. These transactions mark the initial technical success of India's Demat 2.0 pilot.
The bonds use distributed ledger technology for ownership records. Settlement occurs through the Reserve Bank of India's central bank digital currency. This structure allows securities and payment to move simultaneously. However, market participants view these initial trades as largely ceremonial.
Liquidity remains the primary hurdle
Investors cannot sell these bonds for three months. A functioning secondary market is required to generate real volume. Current infrastructure does not support immediate trading. Industry leaders argue that the next milestone is not another issuance but a secondary market trade.
Infrastructure fragmentation poses structural risks
Tokenized bonds operate in a separate digital environment. This creates interoperability issues with existing bond market systems. Brokers face disrupted workflows for financing and inventory management. The current setup may fragment a market that is still developing.
India's settlement model differs from abroad
Singapore used tokenization to lower minimum investment thresholds. India already offers low bond denominations. Therefore, tokenization here primarily solves settlement speed rather than access. This makes it harder to replicate overseas success stories. The focus must shift to integrating with existing clearing and settlement arrangements.
