REC and L&T raise Rs 1,000 crore in India's first tokenised bond issuances under SEBI pilot

Rural Electrification Corporation and Larsen & Toubro issued Rs 1,000 crore in corporate bonds settled on distributed ledger infrastructure through the National Stock Exchange's Electronic Bond Platform, the first completions under the Securities and Exchange Board of India's Demat 2.0 regulatory sandbox. The transactions moved through NSE's custody chain with tokenised representation of each note, separating settlement mechanics from NSDL's conventional book-entry system while preserving SEBI's disclosure and suitability frameworks.

REC, a state-owned infrastructure lender with Rs 4.8 lakh crore in assets under management, and L&T, India's largest engineering conglomerate with a Rs 5.2 lakh crore order book, both structured these issuances as pilot-stage instruments with identical legal standing to conventional debentures but different post-trade architecture. The bonds carry standard credit ratings—REC at AAA from CARE and CRISIL, L&T at AAA from India Ratings and ICRA—and settle in two business days instead of the usual T+1 for exchange-traded debt, reflecting the sandbox's permission to test alternate clearing windows. Pricing matched recent comparable issues: REC's three-year paper at approximately 7.35 percent and L&T's five-year tranche near 7.50 percent, both inside their recent curve levels by eight to twelve basis points, a function of the pilot's novelty premium among institutional buyers looking to test the infrastructure.

The significance lies in custody fragmentation and settlement optionality. India's corporate bond market handles roughly Rs 8 lakh crore in annual primary issuance, nearly all of it locked into the National Securities Depository Limited and Central Depository Services Limited duopoly with no realistic alternative for post-trade reconciliation. Tokenisation does not eliminate the depositories—SEBI's sandbox explicitly requires them as ultimate record-keepers—but it introduces a parallel settlement layer where custodians, arrangers, and issuers can program conditional transfers, automate coupon distributions, and integrate real-time pledge registries without manual intervention at the depository. For borrowers with frequent rollover needs or complex waterfall structures, this compresses operational risk and frees up treasury bandwidth. L&T alone refinances approximately Rs 25,000 crore in bonds and commercial paper annually; even marginal efficiency gains multiply across that base. The pilot also signals SEBI's willingness to let market infrastructure compete on technology rather than merely on fee schedules, a departure from two decades of tightly controlled depository licensing.

Allocators and operators should watch three follow-on developments. First, whether NSE's Electronic Bond Platform gains traction beyond the initial Rs 1,000 crore—SEBI's sandbox allows up to Rs 5,000 crore in total issuance across all participants, and the regulator will evaluate continuation or expansion by June 2025 based on settlement accuracy, liquidity formation, and investor complaints. Second, competitive response from BSE and the two depositories: BSE filed its own tokenisation proposal in November 2024, and NSDL is building a programmable securities module that could either integrate with or bypass the exchange layer entirely. Third, the legal treatment of tokenised bonds in insolvency proceedings—India's Insolvency and Bankruptcy Code has no explicit language on distributed-ledger claims, and the first stressed credit to test cross-default triggers will clarify whether tribunals treat tokens as mere representations or as separate asset classes with distinct seniority.

The Rs 1,000 crore figure itself is immaterial—less than 0.2 percent of India's annual corporate bond issuance—but the infrastructure is replicable. REC and L&T chose the pilot not for cost savings, which are negligible at this scale, but for positioning in a market where the government is openly exploring a Central Bank Digital Currency wholesale layer and where cross-border bond settlement remains a manual, multi-day process. The corporate borrowers who move early on tokenised issuance will have tested the operational playbook before the infrastructure becomes mandatory.