Rapid urbanization has resulted in construction of office complexes, road pavements and high-rise apartment buildings, which increases the paved surfaces. The increased in paved surface results in the increase the surface runoff during rains and therefore requires an efficient urban drainage system to avoid the flash floods in cities. The urban drainage projects are generally implemented with sewerage system projects. However, HUDCO has been promoting exclusive urban drainage projects as one of the important components of the basic services to combat flooding in urban areas.

HUDCO has extended its financial assistance to project covering storm water drain in five towns of Odisha namely Bhubaneswar, Cuttack, Berhampur, Rourkela and Sambalpur.In addition, financial assistance has also been provided to the drainage for flood affected districts of West Bengal, strengthening drainage networks in Jaipur and Lucknow etc. Drainage projects are often integrated with the road restoration, construction and maintenance of nallahas, canals etc. HUDCO has been funding such schemes in Madhya Pradesh (Mukhya Mantri Shahri Adhosanrachana Yojana), Storm Water Drainage works in Bharatpur (Rajasthan), Infrastructure works in various ULBs of Punjab etc. The implementing agencies for these projects are state PSUs, Centre PSUs, state level nodal department such as Public Health Engineering Department, Irrigation department etc.