New Delhi: The financial impact of the new labour codes implemented by the central government in November 2025 is now clearly visible across India’s banking and insurance sectors. Private sector banks and insurance companies have reported a sharp rise in employee-related expenses, leading to higher operating costs during the October–December quarter (Q3FY26). Public sector banks, however, have remained largely unaffected, as their existing compensation structures are broadly aligned with the revised regulatory framework.
Among private lenders, HDFC Bank reported operating expenses of ₹18,770 crore in Q3FY26, compared with ₹17,110 crore in the previous quarter. The bank attributed a significant portion of the increase to the implementation of the new labour codes, stating that employee costs alone rose by nearly ₹800 crore during the quarter. HDFC Bank noted that it continues to monitor clarifications issued by the central and state governments and may recalibrate its accounting treatment as further guidance emerges.
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A similar trend has been observed across other private lenders. ICICI Bank estimated that the labour code transition had a ₹145 crore impact on its profitability in Q3FY26. Yes Bank made additional provisions of ₹155 crore, while Federal Bank estimated an incremental impact of ₹20.8 crore. RBL Bank disclosed an additional ₹32 crore provision linked directly to higher employee benefit obligations under the new framework.
Insurance companies also feel the pressure
The cost impact of the labour codes has extended beyond banking to the insurance sector, particularly among private players. HDFC Life Insurance reported an additional employee benefit expense of ₹106.02 crore following the implementation of the revised rules. ICICI Prudential Life Insurance estimated an incremental impact of ₹11.04 crore, while ICICI Lombard General Insurance projected an additional cost burden of ₹53.06 crore.
Industry experts point out that the sharper impact on private sector banks and insurers is largely due to differences in pay structures. Public sector banks, they say, already had higher basic pay components and benefit-linked compensation models that were closer to the requirements of the new labour codes, reducing the need for major adjustments or additional provisioning.
Why are costs rising?
Under the new labour codes, employers are required to increase the proportion of basic salary within the total compensation package. This change directly raises mandatory employer contributions towards gratuity, pension, and other social security benefits. As a result, total employee costs increase even if headline salary levels remain unchanged.
Private banks and insurers, where variable pay, allowances, and performance-linked incentives historically formed a larger share of compensation, have had to restructure salary components. This transition has resulted in immediate accounting impacts, reflected in higher operating expenses and one-time provisions during the quarter.
What are the new labour codes?
The government rolled out four comprehensive labour codes on November 21, 2025, consolidating 29 existing labour laws into a unified framework. These include the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020. The objective is to simplify compliance, enhance worker protection, and standardise employment conditions across sectors.
On December 30, 2025, the Ministry of Labour and Employment released draft rules and frequently asked questions (FAQs), prompting companies to assess the financial and operational implications and make necessary disclosures in their quarterly results.
Outlook for the sector
Analysts believe that while the initial cost impact of the labour codes is significant for private sector banks and insurers, the effect is likely to stabilise over the coming quarters as institutions adjust compensation structures and absorb the changes into long-term planning. Public sector banks are expected to remain relatively insulated from sharp cost pressures.
The broader implication of the reforms, experts note, is a gradual shift from wage-centric compensation to a welfare-linked framework, improving transparency and long-term employee security. However, how effectively private financial institutions manage these higher costs without eroding profitability will remain a key area to watch in the quarters ahead.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
