La Banque Postale [LAPSTE.UL] is working with Barclays to carry out preliminary work on HSBC's French retail business ahead of an auction process which is due to start next year, the sources said, speaking on condition of anonymity.
The move comes just weeks before a complex merger between state-backed La Poste and CNP Assurances is due to close speeding up La Poste's plans to diversify away from its shrinking mail business.
La Banque Postale and Barclays declined to comment while HSBC only confirmed that its retail banking activities in France were being reviewed.
HSBC is working with Lazard to prepare the sale of its 270 retail branches in France as interim chief executive Noel Quinn wants to reduce costs across the banking group.
The auction is expected to draw interest from a handful of French banks, the sources said.
Unlike La Banque Postale, most French lenders are wary of scaling up their retail networks due to a general fall in profitability for retail banking in Europe.
"La Banque Postale is a strong candidate," one of the sources said, adding its ongoing merger with CNP Assurances was close to the finishing line and would not prevent the company from pursuing another transformational deal.
The merger with CNP Assurances will happen through state-owned investment fund La Caisse des Depots et Consignations, or CDC, which owns minority stakes in both La Poste and CNP Assurances.
French watchdog AMF said in June it had authorized both CDC and the French government to transfer their combined 42% stake in CNP Assurances to La Poste's banking arm La Banque Postale.
Barclays and Lazard worked on the deal representing La Poste and CDC, respectively.
HSBC France boss Jean Beunardeau told French staff in December that while carrying out a strategic review the bank had "started a dialogue with financial institutions" which could be interested in the business, according to an email seen by Reuters.
He added the strategic review included HSBC's operations targeting small and medium-sized enterprises.
By Maya Nikolaeva and Pamela Barbaglia