What is re-discounting of bills?

Re-discounting of bills refers to the process where financial institutions, such as banks, sell their discounted bills of exchange or promissory notes to another financial entity, typically a central bank, to obtain immediate liquidity. This allows banks to manage their cash flow and meet short-term funding needs. The central bank provides funds to the selling bank at a discount, effectively allowing it to access cash before the bills mature. This practice is a crucial tool in monetary policy and helps stabilize the banking system.