Lloyds Banking Group is planning to float 25% of its TSB stake on the London Stock Exchange by the end of June 2014.
Lloyds' finance director George Culmer told reporters on a conference call, following the group's first quarter results announcement, that analysts valued the IPO at around £1.5bn (€1.8bn, $2.5bn).
Lloyds, which is 24.9% owned by the taxpayer, is forced to sell off a chunk of that business under the terms of the £20.5bn bailout package it received from the government in 2008.
In September last year, Lloyds officially split TSB into a separate challenger bank as it hives off 631 branches ahead of a 2014 public flotation of the reformed retail institution.
Originally Lloyds had planned to sell the branches to the Co-operative Bank, but a deal fell through when the latter suddenly pulled out amid issues around its capital position.
"This is a unique event. Lloyds Banking Group is increasing choice and competition in the market by launching one bank and revitalising another," said the Group Chief Executive António Horta-Osório.
"The presence of these two strong brands on the UK high street will provide more choice to our customers and the wider market. The changes reinforce our commitment to better serve our customers as well as delivering a stronger and more competitive banking industry in the UK."
TSB, which has roots dating back to the early 19th century but merged with Lloyds in 1995, will offer retail customers current accounts, mortgages, savings, loans, insurance and financial support for small firms. It will take on five million customers from Lloyds, though no account details will change.
Meanwhile, Lloyds unveiled a 22% jump in first-quarter pre-tax profit and said it returned £4.2bn back to the UK taxpayer during the first three months of this year.
Lloyds said in its first quarter interim management statement that it will also apply to the government to start resuming dividend payments to shareholders.
'We made good progress in the first quarter benefiting from our simple, low risk, UK focused retail and commercial banking business model," said António Horta-Osório, CEO of Lloyds.
"We provided further support to the UK economic recovery while delivering better underlying profitability and improved returns for shareholders from a stronger balance sheet.
Lloyds is also allegedly looking to sell £296.2m worth of shipping loans from its remaining ship finance portfolio in a bid to bolster its balance sheet.