It has been three months since a shadow banking behemoth-turned-defaulter and Indian private sector companies, including financiers, were trying hard to make bond investors trust them with money. The signs are that the trust is unlikely to return quickly.

They can hardly be blamed, with Infrastructure Leasing and Financial Services Ltd (IL&FS) defaulting on the most liquid and pristine form of debt—commercial paper. When money given for three months is not safe, who would lend for 5 or 10 years?

As Chart 1 shows, the amount of money raised by companies in the first fortnight of this month is far from regular levels. Just about 30 deals have been struck, a number raked up by a single bond arranger during a good week in the past.

In fact, even in September, when the IL&FS shock reverberated across markets, money raised through private placement of bonds was not less than half a trillion rupees. But this only meant that investors were blindsided and it took them two weeks to start demanding a fitting compensation. Yields climbed 10 basis points for AAA-rated issuers and deals were hard to come by. Arrangers of such bond issues began to hit a wall with investors while hawking debentures. Private placements of debentures, the favourite mode of raising money for non-banking financial companies (NBFCs), became fewer and smaller in size, too. It soon became clear that AAA didn’t mean much when trust has evaporated.

Chart 2 shows the premium that investors demanded to put money in private corporate paper widened to 100 basis points over the corresponding sovereign yield. Unlike previous episodes, the corporate bond market is still bereft of the benefits of a benign inflation print, and a softening oil price that have brought down government bond yields in the last four months.

NBFCs have realized that their ratings or even their pedigree may not garner them a large sum through debt. In the words of Ajay Manglunia, executive vice president, Edelweiss Financial Services Ltd, NBFCs are reducing their expectations now and opting for smaller issue sizes. “The bond market is far from being completely normal. That said, the trust is coming back, but it will take some time and require a higher price," he said.

The new normal for NBFCs, at least for some, is to turn to securitization and bank loans. A report by Icra Ltd shows that securitization volume in the first seven months of FY19 had exceeded that of FY18. It is clear that bond markets don’t easily forgive misdemeanours and they rarely forget them. The only way to make peace is to pay up.