Tokenisation of corporate bonds: A new chapter for India’s debt market

Reuters recently reported that India is preparing to launch its first tokenised corporate bond issuance in September 2026, with State-owned power financier REC Ltd. expected to issue tokenised bonds of less than INR 500 crore as part of a pilot. The initiative will use Distributed Ledger Technology (DLT) and the Reserve Bank of India’s wholesale Central Bank Digital Currency (CBDC) for transaction and settlement.

The development follows comments made by SEBI Chairperson Tuhin Kanta Pandey in May 2026 at the Debt Market Summit that SEBI was exploring a pilot for tokenisation of corporate bonds to test whether DLT could facilitate faster settlement, better traceability, automated servicing and greater transparency. Mr Pandey also said such technology could potentially contribute to greater liquidity in the corporate bond market.

India’s exploration of DLT in the corporate bond market is not entirely new. In August 2021, a SEBI Circular directed depositories to create, host, maintain and disseminate a Security and Covenant Monitoring System using DLT. The depositories have since implemented and operationalised this DLT-based infrastructure. The proposed tokenisation pilot therefore represents a further evolution in SEBI’s approach to DLT from using the technology as a monitoring and information layer around existing securities, to exploring its use in the tokenisation, holding, transfer and settlement of the securities themselves.

India already has a mature electronic securities infrastructure, with dematerialised securities held and transferred through the depository system and corporate-bond transactions capable of settling on a T+0 or T+1 basis depending on the settlement mechanism. Therefore, the proposed pilot is not simply about introducing blockchain into an otherwise inefficient market. The significance of tokenisation lies elsewhere: it seeks to explore whether securities and money can be brought onto interoperable digital infrastructure, enabling potentially more seamless and instant delivery and payment.

In a conventional transaction, the trade, movement of securities and movement of funds are coordinated through multiple components of the financial-market infrastructure. A tokenised model could allow the digital representation of the bond and the digital payment leg to interact on DLT-based infrastructure. In principle, the transfer of the tokenised bond could occur simultaneously with the transfer of digital money. This could reduce settlement risk and the operational processes involved in reconciling separate records and systems.

For bondholders, the potential benefit lies in the underlying infrastructure: traceability of transactions, seamless settlement, automated servicing and the possibility of more efficient secondary market transfers. Further, tokenisation could reduce minimum investment amounts and thereby improve retail accessibility.

This also raises important legal questions. What is the legal status of the token? Will the DLT record merely represent a security whose legal ownership continues to be determined by the conventional depository record, or will the DLT record itself have legal finality? The answer could have implications for the framework governing beneficial ownership, transfer, pledges, corporate actions, settlement finality, insolvency and enforcement. The roles of depositories, RTAs, clearing corporations, stock exchanges and debenture trustees may also need to be examined as the technology develops.

The initiative is also forward-looking from a cybersecurity perspective. As AI-driven cyber threats become increasingly sophisticated, financial-market infrastructure will need stronger mechanisms to protect the integrity of transaction records. DLT may provide an additional layer of resilience through cryptographically secured, time-stamped and tamper-resistant records. It does not, however, make the system immune to cyberattacks, since vulnerabilities may continue to exist in wallets, interfaces, smart contracts and other connected systems.

At present, there is no publicly announced plan to extend the proposed tokenisation framework to listed equity securities in India. The immediate focus remains on corporate bonds, making the pilot an opportunity to assess the technology, operational framework and regulatory implications before considering any broader application.

Ultimately, the significance of this initiative lies in its potential to move India's securities infrastructure from merely electronic record-keeping towards a more integrated and programmable digital architecture. The objective should not be to replace a system that already works, but to determine whether technology can make that system more interconnected, transparent and resilient.

In this context, REC’s role as the first reported issuer is particularly commendable. As a state-owned power financier with a significant role in funding India’s power sector, its participation provides the pilot with a credible and meaningful starting point. If successful, the REC pilot may well be remembered not merely as India’s first tokenised corporate bond issuance, but as an important early step towards the next generation of India’s securities-market infrastructure.

About the author: KC Jacob is a Partner at Economic Laws Practice.

The above article does not constitute legal advice, and the views expressed herein are personal views of the authors.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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