Banks are income stocks. Loved by retirees who get much higher...

Banks are income stocks. Loved by retirees who get much higher return on their cash than putting it in the bank and it gives them regular income via dividends. Income stocks need to keep their payout ratio high or their primary shareholder base consider moving elsewhere which causes downward price pressure as they shop around for the best dividends whilst trying to preserve capital.

By providing a discounted DRP the company can retain cash from shareholders who don't need the income and will likely redeploy the dividend back into the market once the dividend is received. The discount is actually a very cheap way of retaining money without the need to reduce the dividend needed by shareholders who rely upon the regular income.