Baba Khem Singh was sensitive to the decline that had set in Sikh society after the occupation of the Punjab by the British and to the inroads being made by Christian proselytization. The gravity of the situation was brought home to the community dramatically when, at the beginning of 1873, four Sikh students of the Amritsar Mission School proclaimed their intention of renouncing their faith and embracing Christianity. The Sikhs convened a meeting at Amritsar on 30 . July 1873, led by Baba Khern Singh Bedi, Sardar Thakur Singh Sandhavalia and Kanvar Bikrama Singh of Kapurthala. As a result of the deliberations, a society called Sri Guru Singh Sabha was established at a largely attended gathering on the occasion of Dusshehra, 1 October 1873.

Singh Sabha began to spring tip at other places as well. A co-ordinating Khalsa Diwan was formed at Amritsar on 12 April 1883, with Baba Khem Singh as president and Bhai Gurmukh Singh of Lahore as chief secretary. Serious differences, however, soon arose between the two. Baba Khem Singh, being a direct descendant of Guru Nanak, was glorified by his followers which was resented by man, At the Baisakhi divan at Amritsar in 1884, he was given the customary cushioned seat in the presence of the Guru Granth Sahib. The group led by Bhai Gurmukh Singh protested. A schism arose. Baba Khem Singh's supporters were commonly burlesqued as Gudaila party. A separate Khalsa Diwan was set up at Lahore in April 1886. Baba Khem Singh, supported by the Patron of the Amritsar Diwan, Raja Bikrarn Singh of' Faridkot, secured the excommunication of Bhai Gurmukh Singh under the seal of the Golden Temple. This, however, did not help him retain his position among the Sikh masses; henceforth, his influence was restricted to the Pothohar region and to some areas in Western Punjab. There he preached among the Sahajdharis, and brought a large number into the Sikh fold. Besides the propagation of Sikh faith, Baba Khem Singh's important contribution lies in the spread of education among the Sikh masses, especially women. In 1855, the dispatch of the Court of Directors Of the East India Company, which initiated a new era in Indian education, was received at Lahore.

The following year the Punjab Government established the Department of' Public Instruction and planned to open 30 single-teacher primary schools in each district. Baba Khem Singh lent his full support to the scheme. He also opened schools on his own in the Rawalpindi division. Out of his immense wealth lie gave away liberally for this purpose and at least fifty schools for boys and girls were opened in the Punjab through his help. On the occasion of the marriage of his daughter in 1893, he donated Rs 3,00,000 for religious and charitable purposes. Half of this amount was for setting up a college at Rawalpindi. As a beginning, a vocational School was opened there, in early 1894, with provision for training in dyeing, photography, carpentry, tailoring, etc. Provision was made for subsidized board and lodging for poor students.

Baba Khem singh lived in princely style and enjoyed the reverence of hundreds of thousands of followers in Western Punjab and what later became the North-West Frontier Province. He was on a tour of the latter in the spring of 1905 when he suddenly fell ill. On 8 April 1905, he left Peshawar by rail in a state of' serious sickness and feebleness, and died at Montgomery on 10 April 1905.