13.2 Mitigant Cash Flow or Collateral Cash Flow e

Mitigant or collateral cash flows are cash flows received from the underlying collateral given to the bank by its counterparty, provided, the ownership of the underlying collateral has been transferred to the bank. For example, if a bank has received bonds as collateral against a 5-year loan that it has disbursed, and if the ownership of the collateral is transferred to the bank, then the bank has the right to receive the periodic coupon payments on the underlying bonds till the maturity of the loan. If the ownership of the underlying collateral is not transferred to the bank, then the periodic coupon payments are not payable to the Bank, but will remain with the owner of the collateral.

Similarly, in case of collateral posted by a bank to its counterparty, if the ownership of such an asset is transferred then the cash flows occurring on the collateral will not be considered by the bank during the encumbrance period of the collateral. If the ownership of the collateral is not transferred, then all cash flows from the underlying asset are considered by the bank for its computations.