The correct answer is option 'A' which states that the Narasimham Committee (1991) proposed the establishment of a four-tier hierarchy of the banking structure. Let's understand the details of this proposal.

1. Background:
The Narasimham Committee was set up by the Government of India in 1991, under the chairmanship of M. Narasimham, to examine the financial sector reforms in the country. The committee aimed to address the weaknesses in the Indian banking system and recommend measures for its restructuring and development.

2. Four-Tier Hierarchy of the Banking Structure:
The committee proposed a four-tier hierarchy of the banking structure to enhance the efficiency and stability of the banking system. The tiers are as follows:

a) Base Level - Primary Credit Institutions:
At the base level, the committee recommended the establishment of primary credit institutions. These institutions would include village-level cooperative societies, self-help groups, and microfinance institutions. The purpose of this tier is to cater to the credit needs of small borrowers in rural and urban areas.

b) Local Level - Rural Banks:
The next tier in the hierarchy would consist of regional rural banks (RRBs) and local area banks (LABs). RRBs were already functioning in India at that time, and the committee recommended strengthening their operations. LABs, on the other hand, were proposed as specialized banks to cater to the credit requirements of specific regions or localities.

c) Middle Level - Nationalized Banks:
The middle tier would comprise the existing nationalized banks. The committee suggested that these banks should focus on commercial banking activities and adopt modern technology and management practices. It also recommended reducing government interference in their functioning and promoting their autonomy.

d) Top Level - Large Banks:
At the top level, the committee proposed the establishment of a few large banks with a strong capital base. These banks would have a nationwide presence and provide a wide range of financial services. The committee emphasized the need for these banks to meet international standards in terms of capital adequacy, risk management, and corporate governance.

3. Rationale behind the Proposal:
The four-tier hierarchy of the banking structure was proposed to address the issues of financial inclusion, regional imbalances, and the need for strong and efficient banks. By establishing primary credit institutions and local level banks, the committee aimed to ensure credit availability to small borrowers and specific regions. The nationalized banks would focus on commercial banking, while the large banks would serve as anchor institutions with a strong presence and advanced banking services.

Overall, the Narasimham Committee's proposal for a four-tier hierarchy aimed to create a more robust and inclusive banking system in India. It sought to address the diverse needs of different sections of society and regions, while also promoting efficiency and stability in the banking sector.