Yes, a form of ID is still required, otherwise how would you prove that you're an Indian citizen? A Kiwi could rock up and say 'hi I'm Indian, I don't need a visa'. However, it doesn't need to be a passport.
From the Department of Immigration of the Government of Nepal:
- Information for Indian Citizens
To allow Indian citizens to make travel on the basis of the following document:
- Passport, or
- Driving license with photograph, or
- Identity card with photograph issued by a governmental body, or
- Ration card with photograph, or
- Voter identity card with photograph, or
- Registration certificate issued by the Indian embassy to the Indian citizen staying in Nepal, or
- Ad hoc/temporary identity card issued by the Indian embassy to the Indian citizen in the event of exigency, or
- Document with photograph and setting out identity, issued by the sub-divisional magistrate or authority there above.