The oldest depository of India, National Securities Depository Ltd. (NSDL) launched blockchain-based security and covenant monitoring platform. The Debenture Covenant Monitoring system is designed to enhance the monitoring of bonds.
The system’s decentralized ledger will provide a verifiable and immutable audit trail of transactions between debenture issuers and trustees.
NSDL officially launched the distributed ledger technology (DLT) platform on May 7, during its 25th-anniversary presentation, alongside the Securities and Exchange Board of India (SEBI). The platform is expected to strengthen the monitoring of security and governance in the corporate bonds market. This initiative will bring further discipline and transparency to the market.
All the information on bonds, such as collateral assets, and asset cover ratio, that was previously stored in centralized databases, will be cryptographically signed, time-stamped, and added to the ledger.
“The country’s two depositories, NSDL and the Central Depository Services Ltd (CDSL) will manage the two nodes responsible for network maintenance. Other regulated entities may be allowed to control nodes to become part of the ecosystem in the future” stated SEBI chairperson Madhabi Puri Buch.
He also remarked that the blockchain’s transparency is the key reason for its popularity but the anonymity feature remains highly unwelcomed by Indian authorities.
In the same line of thought, Indian FM Nirmala Sitharaman spoke on blockchain at the NSDL event, where she praised the technology. However, she also raised concern over the ‘inherent risk’ associated with its anonymity factor.
The move may have been prompted by the SEBI announcement earlier in 2021 when it released a circular on “Security and Covenant Monitoring Using Distributed Ledger Technology”. In the circular, the regulator urged depositories to use blockchain ledger for monitoring security creation and covenants of non-convertible securities.
