The major problem, of course, is that the Sanskrit form that we have is narmadā, not naramadā. So, to get the suggested derivation one would have do assume something like a folk etymology, either of original naramadā (syncopated?) as narmadā 'bestowing pleasure' or of original narmadā (with svarabhakti?) as naramadā 'pleasure of men' (there is supposed to be a river name madā).
Cheers,
HHH