India is preparing to launch its first tokenised corporate bond issue next month as authorities test blockchain technology for faster and more efficient securities transactions, according to three people familiar with the plans.
The bonds will be issued by state owned power financier REC Limited, with the offering expected to be worth less than 5 billion rupees ($57 million). The pilot would place India among a growing group of financial markets experimenting with blockchain based bond issuance and settlement.
The initiative is being developed jointly by India’s central bank and securities regulator as part of efforts to explore how distributed ledger technology can modernise the country’s financial markets.
Tokenised bonds are securities whose ownership and transactions are recorded digitally on a blockchain or distributed ledger. The technology can potentially reduce settlement times by allowing transactions to be completed almost instantly.
The pilot is expected to be announced at an annual financial technology event in Mumbai next month. Initially, participation will be limited to a selected group of investors, with the identities of those investors yet to be disclosed.
India’s central bank digital currency, or CBDC, is expected to be used to purchase the bonds, marking a further test of how digital currencies can interact with tokenised financial assets.
Under the proposed system, investors will need two digital wallets. One will hold wholesale CBDC provided through a bank, while another electronic securities wallet will record ownership of the bonds.
Indian securities depositories are developing the new securities wallet, known as DEMAT 2.0, which is expected to use distributed ledger technology to record bond holdings.
Only investors holding compatible CBDC and securities wallets will be able to conduct subsequent transactions involving the tokenised securities, according to one of the sources.
The bonds are expected to carry an initial three month lock in period. Stock exchanges are also expected to establish a secondary market for the securities by December, allowing investors to trade them after the initial restriction.
Unlike conventional bonds, the tokenised securities will not be traded through the existing electronic book provider platform, according to the sources.
The pilot could provide Indian authorities with an opportunity to assess whether blockchain based settlement can reduce transaction times, improve transparency and lower some of the costs associated with traditional securities markets.
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