This paper has analyzed the impact of directional relays (DRs) on reliability evaluation of normally closed loop distribution system by using the reliability index. To improve reliability in distribution system, a study of the normally closed loop distribution system has been studied. In case of changing radial system to the normally closed loop system the reliability of distribution system can be enhanced or reduced due to affects the load linked feeder each other. Three cases, radial system and normally closed loop systems, with and without DRs, studies are thoroughly examined with test distribution system in this paper. We compared the reliability index for each case by evaluating the amount of improvement reliability and we confirmed that the reliability of the normally closed loop distribution system with DRs improved more than other cases.