This research looks at how macroeconomic indicators impact the financial health of public sector banks in India, concentrating on changes that occurred both before and after the 2016 implementation of the Insolvency and Bankruptcy Code (IBC). The effects of GDP development, inflation, and borrowing rates on “Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM)” are examined in this study using a Difference in Difference technique for the years 2011–2012 to 2021–2022. Our findings show that, following the IBC, there is rise in inflation and real interest rates, as well as GDP growth, that have a beneficial effect on ROA. In contrast, ROE fell dramatically, indicating a more nuanced impact of macroeconomic conditions on several financial indicators, although NIM remained steady. This analysis is limited to public sector banks to create a comparable comparison, eliminating foreign and cooperative banks that operate under distinct market dynamics. The findings highlight the importance of macroeconomic policy and financial reforms in improving banks’ resilience and performance. This study provides critical insights for policymakers and banking executives, underlining the importance of developing financial strategies that account for economic changes. It lays the framework for future study that will broaden these findings across many financial industries.