A bus differential relay which is capable of distinguishing between an internal bus fault and an external fault on a feeder line with saturation of the faulted feeder line current transformer during portions of the alternating current cycles thereof is disclosed. The relay generates a net current signal or differential signal from the signals generated by the feeder line current transformers of the protected bus section. During an internal fault, the current differential signal extends in amplitude beyond fault current limits and a trip signal is generated to interrupt current to the bus section. During an external fault with current transformer saturation, the current differential signal will include amplitude portions of the alternating current cycles which exceed the fault limits. However, the current differential signal will also include portions of its waveform which are zero or near zero in amplitude (flat spots) which portions reflect that the current transformer of the faulted feeder line is operating out of saturation. If these flat spots occur for a sustained duration of time, for each half cycle the trip signal generation by the relay is inhibited.