Q. I see often that people when they wash hands say the bracha of "Al Netilat Yadayim" at the time they are drying their hands. Is that correct? Is it correct or commendable for one to hold the towel or paper towel in his hands at that time?
A. Rema (O.H. 158: 11) rules that one should recite the bracha before drying one's hands, so it will meet the requirement of the blessing being said "over leassiosson" or before the mitzva is done, since the drying is also part of the netila. Piskei Teshuvos (166: 20) mentions that one should be very careful to do so, and not recite the blessing at the time one dries the hands or after.
Horav Shlomo Miller's Shlit'a opinion is similar.
In regard to holding the towel during the brocho the Rov's opinion is that it is correct to hold the towel at the time of reciting the brocho.
Rabbi A. Bartfeld as revised by Horav Shlomo Miller Shlit'a