South Africa's PIC in talks with Barclays on African business stake -source

* South Africa's PIC in talks with Barclays (LSE: BARC.L - news) on BAG stake

* Talks about PIC increasing its stake in BAG -source

* PIC not part of a consortium looking at BAG stake -source

By Tiisetso Motsoeneng

JOHANNESBURG, May 4 (Reuters) - South Africa's state pension fund is talking to Barclays Plc about buying some of the stake which the British bank is selling in its African business, a source with direct knowledge of the matter said.

Barclays Plc is selling down its 62 percent stake, which is worth some $5 billion, in Barclays Africa Group (BAG) under a plan by new Chief Executive Jes Staley to simplify the bank's structure and generate higher shareholder returns.

The Public Investment Corporation (PIC), Africa's largest fund manager with more than $122 billion of South African government employee pension assets under its custody, is the second-biggest shareholder in BAG with a holding of about 6 percent.

"There are discussions going on about the PIC increasing its stake in Barclays Africa," the source said, declining to be named because the matter is private. "There's no PIC-led consortium. It (Other OTC: ITGL - news) 's just the PIC,"

Barclays declined to comment.

The PIC is the second investor to show interest in BAG, which runs South Africa's biggest retail bank, after a source told Reuters last month that Atlas Mara has teamed up with private equity group Carlyle to prepare a bid.

However, any deal involving a private equity player could face regulatory opposition from South Africa's central bank.

"As a regulator, we would not be comfortable with private equity play for any of the banks," deputy governor Kuben Naidoo said at a press conference in Pretoria on Tuesday. He did not comment on any specific bank.

Valued at $330 million, Atlas Mara was set up by former Barclays Chief Executive Bob Diamond, who has confirmed that his firm has already lined up funding for an offer, without elaborating on what form the financing would take.

($1 = 14.8052 rand) (Editing by Alexander Smith)