New Labor Codes Increase Costs for Private Banks and Insurers
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Private sector banks and insurance companies in India experienced increased operating expenses in the October-december quarter of fiscal year 2026 (Q3FY26) following the implementation of new Labour Codes notified by the central government in November 2025. These codes have led to higher employee costs for these financial institutions.
The New Labour Codes: overview
The new Labour Codes, enacted in November 2025, aim to consolidate and simplify existing labour laws in India. These codes cover areas such as wages, industrial relations, social security, and occupational safety, health and working conditions. The Ministry of Labour & employment published a consolidated version of the codes in December 2025.
Impact on HDFC Bank
HDFC Bank, India’s largest private sector lender, reported operating expenses of ₹18,770 crore in Q3FY26, a rise from ₹17,110 crore in the previous quarter (Q2FY26). The bank attributed ₹800 crore of this increase to the impact of the new Labour Codes. This represents an approximate 4.7% increase in operating expenses quarter-over-quarter.
According to HDFC Bank’s financial results, the incremental impact of ₹800 crore falls under the ‘Employee Expenses’ category.
Broader Industry Effects
The increased costs are not isolated to HDFC Bank. Other private sector banks and insurance companies are also reporting similar impacts. The statutory requirements of the new Labour Codes, including possibly higher contributions to social security schemes and revised wage structures, are driving these increased expenses. While specific figures from other institutions haven’t been publicly released as of January 18, 2026, industry analysts anticipate a consistent trend across the sector.
Key Provisions Driving Cost Increases
Several provisions within the new Labour Codes contribute to the rise in employee costs. The Wage Code, 2019, for example, introduces a national minimum wage and mandates a global wage floor, potentially increasing wage bills. The Industrial Relations Code, 2020, alters rules around fixed-term employment and retrenchment, which could impact workforce management costs. The Social security Code, 2020 expands social security benefits and coverage, leading to higher employer contributions.
Future Outlook
Financial institutions are expected to continue absorbing these increased costs in the short term. Longer-term strategies may involve adjustments to pricing, operational efficiencies, or workforce planning. The Reserve Bank of India (RBI) is monitoring the impact of the Labour Codes on the financial sector and assessing potential implications for monetary policy.
