I think the size is fine, I'd bet it's exactly the same size as if the player character holds it. The problem is rather that it's sunk into the belt.
There are a few items that deserve to have different models when used and when they're on the belt. Nobelisk, clips, beacons and parachutes are good examples. If devs plan to do that, then aligning the current Nobelisk model with the belt would be unnecessary effort.