This paper deals with application of wavelet transform to detect busbar faults and to provide backup protection for external faults. The detail coefficients of a source CT current, feeder current and Zone-2 current are obtained over a narrow moving window. The fault indexes of differential and source CT current signals obtained are compared with their respective threshold values to detect the internal faults. In the event of feeder and Zone-2 faults, the d-coefficients of differential current have a time shift compared to that of source current. Further the external fault is located by comparing the polarities of peak d-coefficient of source, feeder and Zone-2 currents. The scheme is tested for different types of external and internal faults with variation in incidence angles and fault impedance. The proposed scheme detects internal faults and locates external faults even in the presence of current transformer saturation. © 2008 IEEE.