The state-backed Royal Bank of Scotland (RBS) is pursuing its biggest acquisition since the financial crisis by tabling a bid for Tesco Bank's £3.7bn book of mortgages.
Sky News has learnt that RBS is among the initial bidders for the supermarket giant's home-loan portfolio, which it said last month that it would sell as part of an exit from Britain's mortgage market.
If RBS succeeded in buying the assets, it would mark RBS's largest acquisition since its £45.5bn taxpayer bailout in 2008 led to it becoming one of the world's biggest beneficiaries of government support during the financial crisis.
RBS's only corporate purchase in the last decade has been that of FreeAgent, a financial technology business that it bought last year for about £50m.
Under the terms of its rescue by the then Labour government, RBS was prohibited from making acquisitions until the bank had met a number of conditions.
It has been a prolific seller of assets, with dozens of disposals ranging from loan portfolios to a stake in Worldpay, the payments processor, its US bank Citizens and Direct Line Group, the insurer which is now a FTSE-100 company.
Buying Tesco's mortgage book would provide a modest boost to the Edinburgh-based lender's market share, which stands at around 11%.
Ross McEwan, who will step down as RBS's chief executive in the coming months, has signalled that growing its presence in the mortgage market is a strategic priority for the company.
Sources expect his successor to be named in the next few weeks, with deputy chief executive Alison Rose almost certain to get the job.
Tesco Bank's retreat from the mortgage market was attributed by Gerry Mallon, its chief executive, to "challenging market conditions" which it said had "limited profitable growth opportunities".
Ironically, the advent of ring-fencing for the UK's biggest lenders, a key structural reform designed to make banks safer, is among the factors that have prompted banks' mortgage pricing to become more competitive, making it harder for challenger banks to make inroads into the market.
"Our priority in any sale is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well," Mr Mallon said last month.
Tesco Bank began offering home loans in 2012, and currently has about 23,000 mortgage customers on its books.
The value of any sale to an acquirer was unclear on Friday.
City sources said that other potential bidders had expressed an interest in buying the Tesco Bank loan portfolio, with the sale being handled by investment bankers at Citi.
Nationwide, the UK's biggest building society, is thought to be among those to have lodged an interest, although the status of any offer from it is unclear.
RBS and Tesco Bank declined to comment.