Indian Regulators Prioritize Blockchain for Tokenization and Programmability
Indian financial regulators are actively focusing on and facilitating the integration of Distributed Ledger Technology (DLT), commonly known as blockchain, to unlock transformative use cases centered on asset tokenization, digital programmability, and enhanced market efficiency. This measured but progressive approach, spearheaded by the Reserve Bank of India (RBI) and the Securities and platform Board of India (SEBI), emphasizes using permissioned blockchain systems within regulated environments to ensure compliance and systemic stability. This strategy aims to modernize India’s financial infrastructure while maintaining rigorous oversight.
Tokenization: Digitizing Real-World and Financial Assets
Tokenization is emerging as the most significant area of regulatory exploration. Regulators view the digitization of assets as a key driver for financial inclusion, transparency, and market liquidity. The Reserve Bank of India (RBI) is leveraging its wholesale Central Bank Digital Currency (e₹-W) as the foundation for its asset tokenization pilots. ahead results from the issuance of Certificates of Deposit (CDs) through this mechanism have been encouraging, showing potential for improving market efficiency. RBI Governor Sanjay Malhotra explicitly stated that the Unified Markets Interface (UMI) is being conceptualized as a next-generation financial market infrastructure with the capability to tokenize financial assets and settlements using wholesale CBDC. Separately, the RBI has also conducted pilots on tokenized bank deposits, aiming to reduce settlement risk and enable seamless cross-system transfers. Meanwhile, the Securities and platform Board of India (SEBI) is exploring regulated platforms for fractional ownership of tokenized assets, including mutual funds and corporate debt securities, making high-value investments accessible to small-ticket retail investors. SEBI has already mandated the use of DLT for the security and covenant monitoring of non-convertible securities to enhance transparency and prevent asset duplication since April 2022. Fintech platforms, often operating within regulatory sandboxes, are pioneering the tokenization of commercial real estate and carbon credits, creating new liquidity avenues for these traditionally illiquid assets.
Programmability and New Use Cases
The concept of programmability, where code (smart contracts) is embedded into digital assets or digital currency to automate processes, is central to the regulatory vision for DLT. This feature promises to generate significant operational cost savings and greater capital efficiency. The RBI’s CBDC framework emphasizes programmability for purpose-driven direct benefit transfers, subsidies, and targeted lending, enabling money to be automatically used only for intended purposes. In the financial markets, programmability would enable automated functions like interest calculation and coupon payments for tokenized fixed-income products. Beyond finance, the government’s National Blockchain Framework (NBF), led by the Ministry of Electronics and Information Technology (MeitY), provides a secure, permissioned, and indigenous platform for deploying blockchain answers across sectors. Notable use cases include using DLT for tamper-proof land records management, known as the ‘Property Chain,’ and for end-to-end tracking of SMS messages in the telecom sector to combat spam. Both the RBI and SEBI continue to operate regulatory sandboxes to allow beginups and established financial institutions to test innovative blockchain-based answers in a controlled environment. India’s strategy is one of cautious yet clear support for DLT innovation, aiming to leverage its benefits for financial market infrastructure and governance while maintaining rigorous systemic secureguards.
