REC Limited Issues India's First Tokenized Corporate Bond Under SEBI Sandbox

India's state-owned power-sector lender REC Limited has issued a ₹5 billion ($59 million) tokenized corporate bond under a Securities and Exchange Board of India (SEBI) distributed ledger technology pilot and sandbox. The issuance is a market-structure milestone for India: it is the first tokenized corporate bond settled using the country's wholesale central bank digital currency (CBDC), and it attracted subscription demand nearly eight times the original target size. For accounting firms, CFOs, and auditors who handle Indian capital market instruments, the transaction raises immediate questions about how these instruments are classified, measured, and reported under both Indian GAAP and Ind AS.

What Happened and How the Deal Came Together

REC Limited had initially targeted a ₹1 billion issuance. Book-building on the National Stock Exchange's Electronic Bidding Platform (NSE EBP) generated subscriptions of nearly eight times that amount, prompting the company to exercise a green shoe option and close at the full ₹5 billion. The bond carries a coupon of 7.30 percent per annum and has a tenor of one year and nine months. It is listed on both NSE and the Bombay Stock Exchange (BSE), and the investor base includes some of India's largest financial institutions, with HDFC Bank and ICICI Bank among the named participants.

The SEBI DLT Pilot Framework

SEBI has been developing a regulatory sandbox specifically for DLT-based debt securities. The REC transaction sits squarely inside that framework. Rather than operating outside the regulated perimeter, the bond was structured to remain fully consistent with India's existing securities law architecture, meaning it is listed, exchange-traded under the private placement route, and settled through established depositories. That design choice has direct implications for how the instrument is treated by investors' accounting teams: it is not a novel crypto-asset sitting outside a regulated venue, it is a listed debt security that happens to use distributed ledger technology for its record-keeping layer.

DEMAT 2.0 and the New Account Structure

To reflect DLT-based holdings, depositories have introduced a new account type called a DEMAT 2.0 wallet. This is separate from a standard dematerialised account and is designed to hold tokenized securities. From a record-keeping standpoint, firms holding this bond must confirm that their custody and reconciliation workflows can read from and reconcile against DEMAT 2.0 positions, not just conventional DEMAT balances. For auditors, it means confirming that the client's external confirmation process covers both account types.

Tokenized Bond or Digitally Native Bond: Why the Label Matters

SEBI has consistently described instruments under this pilot as "tokenized bonds" rather than "digitally native bonds" or "native digital securities." This is not a trivial semantic point. A tokenized bond typically refers to an existing legal instrument whose record of ownership is represented on a distributed ledger, the underlying legal obligation still exists in the conventional legal framework. A digitally native or native digital instrument, by contrast, is one where the distributed ledger record is itself the primary legal record of title.

Accounting Classification Consequences

The distinction matters enormously for accounting treatment. If the instrument is a tokenized representation of an otherwise conventional bond, the investor holds a debt instrument and measures it under Ind AS 109 (Financial Instruments) using the same amortised cost or fair-value-through-other-comprehensive-income models that would apply to any listed corporate bond. The DLT layer is infrastructure, not a new asset class. Conversely, if regulators were to treat the instrument as a native digital asset, questions would arise about whether existing Ind AS guidance adequately covers it, and whether the investor might instead look to the principles underlying Ind AS 38 (Intangible Assets) or seek guidance from the Institute of Chartered Accountants of India (ICAI).

Given SEBI's consistent use of "tokenized bond" and the instrument's listing on NSE and BSE under standard private placement rules, the weight of evidence points firmly toward debt-instrument treatment. Accounting teams should document that conclusion explicitly in their accounting policy notes, citing SEBI's framework, the listing status, and the underlying legal structure of the bond.

Wholesale CBDC Settlement and the DvP Question

Settlement of the bond used India's wholesale CBDC, enabling delivery versus payment (DvP). Both the REC announcement and earlier SEBI commentary refer to "CBDC-enabled" or "CBDC-based" settlement rather than simply "CBDC settlement," a subtle but important distinction. CBDC-enabled settlement implies the CBDC leg facilitates the cash side of the DvP cycle, but the question of precisely which counterparties' books reflect a CBDC balance, and which reflect a conventional central bank reserve claim, remains open from publicly available disclosures.

Implications for the Cash Leg on Investor Balance Sheets

For an investor such as a bank or a corporate treasury, the cash consideration paid at settlement needs to be characterised. If the settlement CBDC balance is treated as a claim on the Reserve Bank of India equivalent to a reserve balance, no additional accounting complexity arises; it is simply cash or a cash equivalent. If, however, depositories or intermediaries hold an intermediate CBDC balance on behalf of end investors rather than the investors holding it directly, there may be a receivable or a settlement asset that sits on the balance sheet for the duration of the settlement cycle. Firms that participated in this issuance, or that expect to participate in subsequent SEBI sandbox transactions, should ask their custodians for a clear confirmation of how the CBDC cash leg is recorded and who holds it at each point in the settlement chain.

DvP Finality and Audit Evidence

One practical advantage of DLT-based DvP is that settlement finality is recorded on-chain simultaneously with delivery of the security token. For auditors, this creates an immutable timestamped record of both legs of the transaction, which can serve as primary audit evidence for trade-date and settlement-date accounting under Ind AS 109. Firms should work with their custodians and depositories to understand how to obtain and retain this on-chain evidence in a form that satisfies SA 500 (Audit Evidence) requirements.

Accounting and Reporting Implications for B2B Readers

Accounting firms advising institutional investors, auditors reviewing financial institutions that participated in the issuance, and CFOs at corporates exploring the secondary market all need a clear framework for handling this instrument. The key questions are classification, measurement, disclosure, and custody confirmation.

Classification and Measurement Under Ind AS 109

The bond is a fixed-rate debt instrument with a coupon of 7.30 percent and a tenor of one year and nine months. An investor applying Ind AS 109 will need to complete the business model assessment and the solely payments of principal and interest (SPPI) test. A fixed coupon on a vanilla corporate bond from a regulated issuer will almost certainly pass the SPPI test. Whether the instrument is held at amortised cost or at fair value depends on the investor's business model for managing financial assets. Firms should not allow the novelty of the DLT infrastructure to distract from these fundamentally conventional analytical steps.

Disclosure Requirements

Ind AS 107 (Financial Instruments: Disclosures) requires qualitative and quantitative disclosures about financial instrument risks. The DLT dimension introduces a potential new risk narrative around technology risk and custody risk that standard Ind AS 107 disclosures may not have previously addressed. Audit committees should prompt management to consider whether the notes to the financial statements adequately describe the additional operational risk arising from the DEMAT 2.0 custody structure and the reliance on wholesale CBDC settlement infrastructure.

Transfer Pricing and Group Reporting

For multinational groups with Indian subsidiaries that participated in the issuance, any intercompany funding arrangements related to the purchase of these bonds will need to reflect arm's length pricing. The novelty of the instrument could complicate a comparable uncontrolled price analysis if there are few or no comparable tokenized bond transactions available. Groups should document contemporaneously why conventional corporate bond yields are an appropriate benchmark, given the instrument's listed status and regulatory equivalence to a standard debt security.

Robust digital asset accounting software that can ingest DLT-based settlement data, reconcile DEMAT 2.0 positions, and produce Ind AS-compliant outputs will be essential as more SEBI sandbox instruments come to market. Firms that have already invested in configurable crypto bookkeeping software capable of handling tokenized instruments will be better positioned than those still relying on spreadsheet-based workflows.

What Comes Next for the Indian Tokenized Debt Market

The oversubscription of REC's issuance by a factor of nearly eight is a strong market signal. It suggests that institutional appetite for tokenized Indian debt is material, not experimental. SEBI's sandbox framework is likely to see further issuances, potentially from other public sector entities and eventually from private corporates. Each subsequent transaction will test whether the DEMAT 2.0 infrastructure, the wholesale CBDC settlement rails, and the legal classification framework can scale from one-off pilots to a functioning secondary market.

For accounting and audit firms, the pace of market development means that getting the analytical framework right now, before a client's portfolio contains dozens of these instruments, is strategically important. Investing time in understanding SEBI's DLT framework, engaging with depositories about DEMAT 2.0 reporting, and stress-testing custody confirmation procedures against on-chain evidence are all steps that pay dividends as the market matures. Firms navigating complex digital asset structures should also maintain strong AML controls, as the intersection of novel settlement infrastructure and institutional capital flows requires vigilance; our earlier analysis of how AML controls must adapt to digital asset marketplaces remains directly relevant.

Source: Ledger Insights