Despite the obvious drawbacks of a larger rotor diameter would the reduced disc loading increase efficiency during hover and forward flight?
Larger rotors means more weight, so the overall loading will be greater /even when/ the larger disk increases airframe's MTOW. So, there's a curve of where rotor blades provide the most lift force for their size (area) and relative airflow- a product of TAS, AoA, and RRPM, all of which can change independently and make blades more or less efficient in different flight configurations (i.e. most efficient at 0kts / 30kts / 80kts, etc...). I assume that the retreating blade stall forward speed reduces with larger blades because the tips of the blades are moving faster, and there's probably much more to take into account...
However, to make things much simpler, all this stuff is all done by the manufacturer, so just slapping larger blades onto your helicopter than what came out of the factory is very likely a very bad idea, and not just from a fuel efficiency standpoint.
Yes, increasing rotor diameter increases efficiency by reducing disk loading, exactly as you say.
From J. Gordon Leishman, Principles of Helicopter Aerodynamics, section 2.3:
..vertical lift aircraft that have a low effective disk loading will require relatively low power per unit of thrust produced..and will tend to be more efficient; that is, the rotor will require less power (and consume less fuel) to generate any given amount of thrust.