India stands at a pivotal moment in the evolution of its financial system. Over the last decade, public digital infrastructure such as UPI and Aadhaar have transformed how money moves domestically. Yet, as global finance shifts toward programmable, always-on settlement rails, India faces a strategic question: how does it modernise banking without compromising stability?

Two ideas — deposit tokens and asset tokenisation — may hold the answer.

Deposit tokens represent a natural evolution of bank money. Issued by regulated banks on secure, permissioned blockchain rails, these tokens are fully backed by traditional deposits and subject to prudential oversight. Each token is a direct claim on a bank’s balance sheet, preserving trust while unlocking new technical capabilities. Rather than operating outside the system, deposit tokens extend the regulated banking framework into a programmable digital layer.

This distinction is critical. Much of the debate around digital money has focused on the perceived trade-offs between innovation and safety. Deposit tokens eliminate this false choice. They enable near instant settlement, atomic delivery versus payment, and automated reconciliation. These are features that require multiple intermediaries and delayed clearing, without introducing new credit or liquidity risks.

For Indian banks, the implications are immediate. Interbank settlements, treasury operations, and large-value corporate payments can move from batch-based processes to real-time rails. Cross-border transactions, which today remain slow, expensive, and opaque, can be sped up with greater transparency, and compliance embedded directly in transactions rather than applied after the fact.

Several global blockchain infrastructure providers, including Polygon, are working with banks and other institutions on permissioned, compliance-first blockchain rails for tokenised deposits and real-world assets.

Tokenisation of real-world assets presents an equally important opportunity. India is rich in assets but constrained by liquidity. Vast amounts of capital remain locked in real estate, gold, infrastructure, and unlisted equity. These valuable assets are difficult to divide, transfer, or use efficiently as collateral. Tokenisation represents ownership or economic rights as digital tokens that can be fractionalised, transferred, and settled with far lower friction.

Simple, transparent

In real estate, tokenisation can simplify complex ownership structures with greater transparency. Gold, long an asset of choice for Indian households, can be tokenised with secure custody and instant settlement, allowing it to integrate effectively with formal financial markets. Even private equity and venture investments, traditionally illiquid and limited to institutional players, can benefit from controlled liquidity under compliant tokenised frameworks.

Importantly, tokenisation is not about speculative financialisation. It is about making existing value more efficient, reducing operational costs, improving access, and widening participation under clear regulatory guardrails. When paired with bank-issued deposit tokens, tokenised assets can settle instantly in regulated digital money, reducing counterparty risk and enabling new market structures.

Technology, however, is only part of the equation. For India to remain competitive, regulatory clarity — particularly around foreign exchange, AML and KYC, and cross-border use of blockchain-based instruments — is essential. Many tokenisation initiatives are today confined to domestic pilots or sandbox environments due to the uncertainty around capital controls, custody norms, and cross-jurisdictional compliance.

This is where India has a strategic advantage. By proactively defining how regulated digital money and tokenised assets can operate across borders — especially for trade finance, remittances, and institutional settlements — India can help shape global standards rather than adapt to them later. Other financial centres are already integrating blockchain rails into mainstream banking while preserving regulatory oversight. Falling behind would be not just a technological failure, but also a strategic one.

The cost of inaction is subtle but real. Global finance is being built on programmable infrastructure, where money, assets, and compliance move together. If Indian banks and institutions cannot participate in these networks, capital and innovation will naturally gravitate toward jurisdictions that can. Over time, this risks diminishing India’s influence in global financial markets.

Deposit tokens and tokenisation do not represent a break from India’s banking model. They are evolutionary steps, extending trust, regulation, and scale into a new technological paradigm. Much like UPI modernised payments while remaining invisible to users, these instruments can quietly upgrade the financial backbone of the economy.

India has already demonstrated its ability in building digital public infrastructure at a population scale. The next trillion dollars of value will depend on whether the same clarity and ambition are applied to the banking layer itself. The crossroads is here, and the direction India chooses will shape not just its financial system but also its role in the future of global finance.

(The writer is Global Head of Payments at Polygon Labs)

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Published on April 13, 2026