If you are looking to assist the other bank, I would not recommend releasing any funds based solely on the indemnification agreement. You'll want something in addition to the agreement.
Since this is a check kite, I assume the other bank is sitting on some items that you had returned to them unpaid. As such, ask them to send you the returned items on a collection basis. Then, if the loan goes through and funds become available, you can post those checks and pay the other bank at that time.
This is an important CYA step, as the underlying debit to your customer's account is strictly a result of your negotiation of an enforceable instrument.