Differentiated banks are banking institutions licensed by the RBI to provide specific banking services and products.
It is a system refers to the system of different licenses for different sub components of the banking sector such as Limited Banking License, Commercial Banking License etc. A differentiated license will allow a bank to offer products only in select areas.
Main aim for giving license to differentiated banks is to promote financial inclusion and payments. The term differentiated banks indicate that they are different from the usual universal banks. The universal banks like SBI, Canara Bank etc. can give almost all products and services. On the other hand, the differentiated banks can give only selected products like credit, payments, deposit etc., with RBI regulations.
Differentiated banks licensing was launched in 2015. The differentiated banks are of two types-payment banks and small finance banks.