India is taking another step toward integrating distributed ledger technology into traditional capital markets. In September 2026, REC Limited, a state-owned power-sector financing company, completed India’s first pilot issuance of tokenized corporate bonds under the Securities and Exchange Board of India’s regulatory sandbox framework. The issue size was ₹500 crore, including a ₹100 crore base issue and a ₹400 crore green-shoe option. The bonds carried a 7.30% annual coupon and a maturity of one year and nine months. The issue received bids worth ₹796 crore.
The pilot was followed by additional issuances. Larsen & Toubro issued ₹500 crore of tokenized bonds on September 9, becoming the first private-sector corporate to participate in the framework, while IIFL Finance subsequently raised ₹25 crore through tokenized bonds. This suggests that the experiment is expanding beyond a single issuer.
These Tokenized Securities are also different from ordinary crypto tokens issued on permissionless networks. India's Demat 2.0 pilot uses a permissioned distributed ledger to record securities ownership and combines the securities infrastructure with digital-currency settlement. REC said the pilot enabled pay-in, allocation and bond listing to be completed on the same day.
For KYT, the development matters because the digitization of securities ownership, transfers and settlement can expand blockchain-style monitoring beyond traditional crypto assets. Risk teams may increasingly need to analyze securities tokens, digital wallets, investor relationships and settlement flows together.
What Does India's Tokenized Corporate Bond Pilot Signal?
REC's issuance under SEBI's regulatory sandbox is not simply an attempt to turn a conventional bond into a digital token. The pilot is designed to test how distributed ledger technology can be used across issuance, ownership, trading and settlement.
According to REC, the ₹500 crore issuance was conducted through the NSE electronic bidding platform, while the tokenized structure enabled pay-in, allocation and listing to take place on the same day. Securities ownership is recorded and tracked through a permissioned distributed ledger, with the broader framework involving Demat 2.0 and CBDC-based settlement infrastructure.
This approach differs from conventional securities infrastructure, where issuers, exchanges, clearing systems, custodians and investors may maintain records across different systems. A distributed ledger can provide a more synchronized representation of ownership and transaction status.
However, tokenization does not eliminate compliance risk. As securities become more digital and potentially more automated, financial institutions may have to manage larger volumes of interconnected transaction data involving investors, securities tokens, wallets, counterparties and settlement accounts.
For KYT, one fundamental question is who owns or controls the relevant account or wallet. A ledger can demonstrate that a token moved from one address or account to another, but the transaction itself does not necessarily establish the ultimate identity or purpose behind the movement. Identity attribution still needs to be connected with customer due diligence and other compliance information.
How Can KYT Monitor Investors and Fund Flows After Tokenization?
Once securities are tokenized, KYT can build relationship models connecting investors, wallets, securities tokens and settlement assets.
The first layer is the relationship between investors and wallets. Institutional investors may operate multiple custodial accounts or wallets. Monitoring systems should be able to recognize relationships between those accounts so that normal internal transfers are not incorrectly treated as independent external transactions. At the same time, a wallet that suddenly receives a large amount of Tokenized Securities outside its historical investment pattern may require additional review.
The second layer is the movement of the securities themselves. Traditional KYT primarily focuses on fund flows, but tokenized securities create a second dimension: asset movement and payment movement. A bond-token transfer may correspond to a fiat or CBDC settlement. If the securities move without the expected settlement, or if the timing and amount of the two sides do not match normal patterns, the transaction may warrant further investigation.
Counterparty analysis is another important layer. Tokenized securities may move between institutional investors, custodians, brokers and other regulated participants. KYT can establish normal relationship patterns and identify significant deviations. If an investor suddenly begins transferring large amounts to previously unrelated or high-risk counterparties, the activity can be escalated for screening.
Cross-account and cross-system activity will also become important. Tokenized securities may eventually interact more closely with stablecoins, CBDCs and other digital settlement instruments. The security itself may be recorded on one permissioned ledger while the payment leg is processed through a separate digital-currency infrastructure. Comprehensive monitoring therefore requires linking transaction events across systems.
For financial institutions, KYT is consequently evolving from a simple question—“Is this address risky?”—toward a broader analysis of why the security moved, who controls it, what payment supports the transaction and where the asset goes next.
Why Will Expanding RWA Securities Require Continuous KYT?
Tokenized corporate bonds remain at an early stage, but India's recent activity shows that the number of participating issuers is already increasing. After REC completed the initial pilot, L&T and IIFL Finance entered the tokenized bond market. Business Standard reported that three issuers had completed tokenized bond transactions totaling ₹1,025 crore by September 10.
As the market expands, risk monitoring cannot stop at issuance. Investor identities and funding sources can be verified during issuance, but ownership may change later. Securities may move between custodial accounts, and new relationships may emerge after the original purchase.
Continuous KYT can therefore monitor securities-token transfers, settlement activity, investor-account changes, transaction frequency, transaction size, counterparties and subsequent fund paths. When several risk signals appear together, the activity can be escalated for additional investigation.
RWA products also require careful separation of asset status and payment status. A Tokenized Security represents an underlying financial asset, so risk does not necessarily originate from the blockchain transaction alone. The issuer, investor, custodian and counterparty may each introduce different risk factors. KYT needs to combine on-chain or distributed-ledger analysis with customer information, business relationships and risk indicators.
India's Demat 2.0 pilot shows that the connection between traditional capital markets and distributed ledger infrastructure is becoming more concrete. As corporate bonds, funds and other RWA products increasingly adopt digital infrastructure, KYT monitoring may expand from crypto wallets to securities tokens, institutional accounts and digital settlement networks.
The key question will no longer be simply whether an address is risky. Effective monitoring will also need to determine who holds the Tokenized Security, where it came from, how the corresponding funds were settled and whether the entire transaction path is consistent with the investor's and institution's normal behavior.