India launches Demat 2.0 pilot to tokenize $620 billion corporate bond market with digital rupee

India has launched the Demat 2.0 pilot program, integrating blockchain technology and the Reserve Bank of India's wholesale digital rupee to tokenize and settle corporate bonds. Early issuances by REC, Larsen & Toubro, and IIFL Finance raised a combined ₹1,025 crore. Finance Minister Nirmala Sitharaman and RBI Governor Sanjay Malhotra are pushing for advanced CBDC capabilities to enable instant, risk-reduced settlements, while simultaneously warning of the cybersecurity and systemic risks posed by rapid AI adoption.

Demat 2.0 pilot launch

• ▪The Demat 2.0 pilot program utilizes blockchain technology and the Reserve Bank of India's wholesale digital rupee to issue and settle tokenized corporate bonds.
• ▪The Demat 2.0 pilot program is led by Indian depositories Central Depository Services Ltd and National Securities Depositories Ltd, exchanges BSE and National Stock Exchange, banks HDFC Bank and ICICI Bank, and the National Payments Corporation of India.
• ▪The Securities and Exchange Board of India and the Reserve Bank of India launched the Demat 2.0 pilot program on September 10, 2026, to test corporate bond tokenization and faster settlement.

Tokenized corporate bond issuances

• ▪The tokenized corporate bonds issued under Demat 2.0 retain conventional fixed interest rates, maturity dates, and investor rights.
• ▪State-owned power-sector lender REC raised ₹500 crore (approximately $56 million) through the Demat 2.0 tokenized bond system under the Securities and Exchange Board of India's regulatory sandbox.
• ▪Engineering and construction firm Larsen & Toubro raised ₹500 crore through the Demat 2.0 pilot, attracting investors including SBI, Axis Bank, SBI Mutual Fund, and NSDL.
• ▪Non-bank lender IIFL Finance raised ₹25 crore (approximately $2.8 million) through the Demat 2.0 tokenized bond system.

Digital rupee settlement infrastructure

• ▪Demat 2.0 connects the tokenized bond ledger with the Reserve Bank of India's wholesale digital rupee through its Unified Market Interface, allowing the bond and payment to settle together.
• ▪The Demat 2.0 pilot program plans to automate corporate actions such as interest payments and redemptions through smart contracts, with future phases introducing secondary-market trading and retail access.
• ▪Simultaneous settlement of tokenized bonds and digital rupees reduces settlement risk by preventing exposure if one leg of the transaction fails before the other completes.

CBDC advancement push

• ▪Reserve Bank of India Governor Sanjay Malhotra stated that early experiments with financial asset tokenization are helping the regulator test infrastructure for future markets.
• ▪Indian Finance Minister Nirmala Sitharaman on September 11, 2026, urged the Reserve Bank of India to further advance its wholesale and retail central bank digital currency pilots.
• ▪The Reserve Bank of India is exploring a gold tokenization program, according to Reserve Bank of India Executive Director P. Vasudevan.

AI cybersecurity risks

• ▪Indian Finance Minister Nirmala Sitharaman cautioned that agentic AI could amplify operational and systemic risks, allowing errors, fraud, and market shocks to spread at machine speed.
• ▪Reserve Bank of India Governor Sanjay Malhotra emphasized that firms must address risks from algorithmic opacity, bias, financial exclusion, cybersecurity vulnerabilities, and the erosion of human judgment in AI decision-making.
• ▪Indian Finance Minister Nirmala Sitharaman warned that Artificial Intelligence acts as a double-edged sword, helping spot fraud faster but also allowing attackers to automate larger, more sophisticated cyberattacks.
• ▪State Bank of India Chairman CS Setty stated that banks' Artificial Intelligence integration must achieve 100% accuracy at population scale.

Blockchain distributed ledger technology

• ▪Tokenizing financial assets reduces ownership costs by breaking down high-value assets, such as a Rs 10 lakh bond, into smaller units like Rs 100 to make them accessible to retail investors.
• ▪Indian regulators are utilizing tokenization within controlled financial systems involving regulated banks, depositories, and central-bank money rather than open, private cryptocurrency markets.

Debatable claims

• ▪Financial asset tokenization should be restricted to regulated, central-bank-controlled systems
• ▪Financial regulators should adopt a soft-touch approach to artificial intelligence
• ▪The Reserve Bank of India should rapidly expand its retail digital rupee pilot