India is preparing to test blockchain-based bond settlement with the launch of tokenized corporate bonds next month, Reuters reported Monday, citing three people familiar with the plans.

The pilot will be led by state-owned power financier REC and is expected to involve less than 5 billion rupees ($57 million) in bonds.

The offering could be announced at an annual fintech event in Mumbai and will be restricted to a select group of investors at launch. The move would mark an early test of distributed ledger technology for bond issuance and settlement in India, bringing it closer to markets such as Europe and Hong Kong that have already explored tokenized securities.

According to the report, investors will use India’s central bank digital currency to purchase the bonds, with the central bank and market regulator working together on the framework. Tokenization puts bond ownership, issuance, trading and settlement onto a blockchain or distributed ledger, potentially allowing transactions to settle almost immediately.

The pilot will require participants to hold both a wholesale CBDC wallet and a digital securities wallet. Indian depositories are developing a new securities wallet, called DEMAT 2.0, which will track bond holdings on a distributed ledger. Future trades will only be possible between participants holding compatible CBDC and securities wallets.

The bonds will have an initial three-month lock-in period, with exchanges expected to establish a secondary market by December. They will not be traded through a conventional electronic book provider platform. 

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