Catholics interpret “born of water” in John 3:5 as baptism and therefore conclude baptism is necessary for salvation. Here’s the passage:
Jesus answered, “Most assuredly, I say to you, unless one is born of water and the Spirit, he cannot enter the kingdom of God.
Born of water has been taken as 1) the Spirit or cleansing work of the Spirit, 2) natural birth or 3) baptism. For now let’s assume it means baptism and see how it plays out.
Would first century Jews have instantly recognized 'born of water' as meaning baptism? Certainly Nicodemus was aware of baptism. John the Baptist baptized people for repentance. Some evidence suggests Jews baptized proselytes and even called it birth.
“Everyone agreed that a Gentile became a Jew through proselyte baptism. The big discussion in Nicodemus' day was the degree of cleanliness. Was he immediately clean as "a little child just born" (Yeb. 22a; 48b; 97b*) and a "child of one day" (Mass. Ger. c. 2*)” (link)
Not only did John baptize, but Christ also baptized via His disciples, just as John the Baptist had predicted He would.
John 1:33 I did not know Him, but He who sent me to baptize with water said to me, ‘Upon whom you see the Spirit descending, and remaining on Him, this is He who baptizes with the Holy Spirit.’
John 4:1-2Therefore, when the Lord knew that the Pharisees had heard that Jesus made and baptized more disciples than John (though Jesus Himself did not baptize, but His disciples)
So if Nicodemus understood ‘born of water’ as baptism, he would have been thinking of John’s baptism of repentance. And the Jewish leadership had personally rejected John and his baptism; though they were unwilling advertise their rejection.
Luke 7:30 But the Pharisees and lawyers rejected the will of God for themselves, not having been baptized by him.
Matthew 21:24-26 But Jesus answered and said to them, “I also will ask you one thing, which if you tell Me, I likewise will tell you by what authority I do these things: The baptism of John—where was it from? From heaven or from men?” And they reasoned among themselves, saying, “If we say, ‘From heaven,’ He will say to us, ‘Why then did you not believe him?’ But if we say, ‘From men,’ we fear the multitude, for all count John as a prophet.”
But of course John’s baptism is one of repentance and Christian Baptism looks on Christ’s death burial and resurrection. So when Paul found those who were baptized into John’s baptism, he baptized them again in Christ’s name.
Acts 19:1-5 And it happened, while Apollos was at Corinth, that Paul, having passed through the upper regions, came to Ephesus. And finding some disciples he said to them, “Did you receive the Holy Spirit when you believed?” So they said to him, “We have not so much as heard whether there is a Holy Spirit.” And he said to them, “Into what then were you baptized?” So they said, “Into John’s baptism.” Then Paul said, “John indeed baptized with a baptism of repentance, saying to the people that they should believe on Him who would come after him, that is, on Christ Jesus.” When they heard this, they were baptized in the name of the Lord Jesus.
Christian baptism had not been established at the time Christ and Nicodemus spoke. Did Christ forget this when berating Nicodemus for not knowing what He was talking about? (John 3:9-10) So clearly Nicodemus would have been thinking about John’s baptism; the baptism he probably personally rejected. Christian baptism simply didn’t exist yet.
So it’s anachronistic to view John 3:5 as teaching Christian baptism is necessary for salvation, since Christ established it after the resurrection. (Matthew 28:19). And no one teaches John’s baptism is or was necessary for salvation, but of course repentance itself is necessary for salvation. So if we take ‘born of water’ as baptism, the most likely conclusion would be that baptism is used for what it represented – repentance.