Fruit cakes beginning to deteriorate in large handkerchief (7)
I believe the answer is:
bandana
'large handkerchief' is the definition.
(I've seen this before)
'fruit cakes beginning to' is the wordplay.
'fruit' becomes 'banana' (type of fruit).
'cakes' is an insertion indicator (cake can mean to cover).
'beginning to' becomes 'd' (I can't justify this - if you can you should give a lot more credence to this answer).
'banana' placed around 'd' is 'BANDANA'.
'deteriorate in' acts as a link.
This may not be right. Some or all of it may belong to another bit of the clue.
Can you help me to learn more?
(Other definitions for bandana that I've seen before include "Coloured square for wearing" , "Spotted square" , "Large and brightly coloured handkerchief" , "Type of scarf" , "Coloured square worn around the head or neck" .)