Differentiated banks, including Small Finance Banks (SFBs) and Payments Banks (PBs), were introduced by the Reserve Bank of India to promote financial inclusion and extend formal banking services to underserved and unbanked populations. This study examines the role of differentiated banks in enhancing financial inclusion and supporting sustainable economic growth in India. Using secondary data from RBI reports, annual financial statements, and government publications, the research evaluates the outreach, performance, and impact of these banks on low-income households, micro and small enterprises, and rural communities. Key indicators such as account penetration, credit distribution, digital transaction volumes, and profitability are analyzed to assess their contribution to inclusive development. The findings suggest that differentiated banks have significantly expanded access to basic financial services, especially in rural and semi-urban areas. Small Finance Banks have played a crucial role in providing credit to priority sectors, while Payments Banks have strengthened digital payment infrastructure and encouraged cashless transactions. Despite these achievements, challenges related to limited revenue models, high operational costs, and regulatory constraints continue to affect their long-term sustainability. The study concludes that with supportive policy interventions, technological innovation, and improved financial literacy, differentiated banks can serve as a strong catalyst for inclusive and sustainable growth in India’s evolving financial landscape..