Using Diminutive in Names

Question :

I often hear people, both educated and otherwise, calling others using the diminutive form, especially those whose names refer to them as being Allah's servant.

Thus Abdullah (servant of Allah) becomes 'Ubayd (small servant) and Muhammad becomes Muhaymid (small Muhammad). Is this permissible?

Answer:

Regardless whether it is in names that refer to someone as being Allah's servant, or in other names, there is no harm in calling someone by the diminutive form. I know of no one among the people of knowledge who prevented it. On the contrary, a number of Hadiths and narrations from our pious predecessors show that it is permissible, and so we come across the names Unays, Humayd, and 'Ubayd. But if a person dislikes to be called in this fashion, then it is obviously unlawful, since then it is a form of calling others by bad nicknames, which has been forbidden in the Qur'an-unless a person is known only by that name, then there is no harm in it as is clear from some of the Imams of Hadith, like Al-'Amash (blear-eyed) and Al-'Araj (cripple).

Source:
Ibn Baz
Fatawa Islamiyah, Vol. 8 Pages 211-212